The central bank may hold benchmark interest rates steady on concern of a slowing economy, ending the monetary policymaker's three consecutive quarter hikes, the US investment bank Lehman Brothers said yesterday.
Lehman Brothers' forecast came ahead of the central bank's quarterly meeting scheduled for today.
"The main reason to keep rates unchanged is that the economy has weakened sharply," Rob Subbaraman, Lehman Brothers senior economist in Tokyo, wrote in its latest report released yesterday.
GDP growth weakened to 2.5 percent year-on-year last quarter, the slowest pace in more than a year, according to the government's statistics.
"Moreover, the activity data so far in the second quarter point to an even sharper slowdown," Subbaraman said.
Subbaraman said industrial output last month was down 1.42 percent year-on-year, citing the Ministry of Economic Affairs' figures released last week.
Last month, the nation's leading economic index and export orders also declined to the two-year and 18-month lows, respectively, he said.
Those indicators are three of the key elements making up an economy's GDP.
But Cheng Cheng-mount (鄭貞茂), chief economist of Citigroup in Taipei, told the Taipei Times last week that the central bank is expected to increase its benchmark interest rates by 0.125 percentage points, in tandem with the US Federal Reserve Board's move.
Cheng said the central bank may raise the rate by the same amount at its next quarterly policy meeting to avert a possible inflation risk and to boost the real interest rates above the negative level.
Consumer prices last month rose 2.3 percent year-on-year, compared with 1.6 percent the previous month, the Directorate General of Budget, Accounting and Statistics reported earlier this month.
Since last October, the central bank has lifted rates a total of 0.5 percentage points, making the key rediscount rate 1.875 percent at present.
But Subbaraman said that there was insufficent reason for the bank to raise interest rates, because consumer prices would only have a mild increase this year.
The rise in inflation is primarily driven by higher oil prices, he said.
Taiwan's core consumer price index (CPI), excluding fresh fruit, vegetables and energy prices, only edged up 0.6 percent last month, while the wholesale price index (WPI) fell for the first time over the past three years, down 0.6 percent, he said.
Overall, the CPI would increase moderately by 1.7 percent this year, according to the government's latest projection.
While possible economic slowdown would be more of a headache for the central bank, Subbaraman said rising oil prices and stagnant demand for electronic devices are hurting economic growth.
He trimmed the annual GDP growth forecast for Taiwan to 3.2 percent for this year from 4.3 percent estimated earlier along with other Asian countries.
But, Taiwan's growth rate lagged behind the revised projection of an average 4 percent for the economies in the region excluding Japan and China, according to the report.
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