The central bank yesterday raised the benchmark interest rates by another 0.125 percentage points to a three-year high in an attempt to assuage mounting inflation amid rising oil prices and a looming increase in utility rates.
The monetary policy-setting body's decision came as an extension of its primary jobs to combat underlying inflation risk in the past three quarter hikes totaling 0.5 percentage points.
The latest interest rate hikes announced following the bank's quarterly policy meeting, boosted the rediscount rate charged to commercial lenders to 2 percent. The central bank also increased both secured accommodations rate and unsecured loan rate to 2.375 percent and 4.25 percent, respectively.
But, the pace could be slower than a consensus estimate of a quarter-point increase for the US Federal Reserve's key interest rates.
"As consumer prices are still under heavy pressure for further increases, the central bank should gradually steer the monetary policy to neutral [from loosening] to keep the prices stable," central bank Governor Perng Fai-nan (
A spike in international oil prices, a significant rise in produce prices after recent floods and potential price hikes in energy and power rates all will push up consumer prices, the central bank said in a statement.
"Those factors are likely to bring up the nation's 2005 consumer price index [CPI] over 1.7 percent projected by the government in May," Perng said, on the grounds that the crude prices already exceeded the level the government set at the time.
The CPI rose to 1.74 percent in the first five months, according to the government's statistics released last month.
On top of that, Taiwan's real interest rates still fall in negative territory, which was rare compared to other countries, including the US and South Korea, made room for the central bank to jack up interest rates further, Perng said.
The overnight intra-bank rate, for example, still stands at negative 0.44 percent and the yield for the government's two-year bonds remains at minus 0.33 percent, according to the central bank's figures.
The latest interest rate hikes also reflected that the bank is not wary of Taiwan's economic growth after faltering to 2.5 percent year-on-year during the April-June quarter.
The slower-than-expected expansion has driven the government to trim its forecast for the GDP growth to 3.63 percent for this year.
"The interest rate increases are quite moderate and will not slow any economic activities, or the nation's economic recovery," Perng said.
As for the exchange rate policy, Perng said the central bank will stand by its long-term policy of keeping the New Taiwan dollar in a narrow range.
The bank will step in the currency market to avert the short-term hot money from seriously impacting the local currency, he said.
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