While the US' interest-rate hikes are expected to come to an end next year, the nation's central bank is expected to uphold its gradual monetary tightening efforts and raise its benchmark rates throughout at least the first half of next year, analysts said yesterday.
The central bank is slated to hold its year-end quarterly meeting on Thursday to discuss possible changes to monetary policy.
"We expected the bank to lift its benchmark interest rate by 0.125 percentage points this week," Cheng Cheng-mount (鄭貞茂), chief economist and vice president of Citibank Taiwan Ltd, said in a tele-phone interview yesterday.
"And this will not be the last time," he said, as the interest-rate spread between Taiwan and the US has been widening, given that the US hiked rates by 0.25 percentage points compared with Taiwan's smaller hikes of 0.125 percentage points, Cheng said.
The central bank would probably stop the hikes after another spike of at least 1.25 percentage points by March next year, in light of easing inflation and decelerating economic growth, he said.
Citibank predicted that the consumer price index -- an important measurement used to gauge inflationary pressure -- will drop to 2 percent next year from 2.3 percent this year, while GDP growth will slow to 3.6 percent from 3.8 percent.
The US Federal Reserve last week raised its benchmark Fed-funds rate by a quarter point -- for the 13th time in succession since June last year -- to 4.25 percent, to address looming inflationary threats. It hinted at a possible end to its measured tightening policy.
Taiwan's central bank has jacked up its benchmark rates five times since October last year.
On Sept. 15, the bank raised the rediscount rate charged to commercial lenders to 2.125 percent, while boosting the secured accommodations rate and unsecured loan rate to 2.50 percent and 4.375 percent, respectively.
Notwithstanding, Taiwan has the world's slimmest spread after only the US between its long-term and short-term interest rates at about 0.6 percent, Taiwan Institute of Economic Research (TIER, 台經院) researcher Chen Miao (陳淼) said.
A narrow spread between a country's long-term and short-term interest rates indicates people's bearish view of the economic outlook and lower capital demand.
To overturn the situation, Chen expected at least another two rate hikes at 0.125 percentage points each by the end of June next year against the backdrop of an ideal macro-economic environment.
TIER forecasted GDP growth of 3.96 percent next year, up from 3.51 percent this year, driven by an expanding trade surplus.
Not all research institutes agree. UBS Securities Ltd said the nation's relatively slow economy cannot support more rate increases in the near future.
"We do not expect further moves next year after the bank's rate hikes of 0.125 percentage points at the end of this year," in view of a less-than-robust economy and diminishing inflationary pressure, Ken Chen (陳安), head of research at UBS Securities Taiwan Branch, said earlier this month.
UBS Securities forecast economic growth of 3.2 percent for next year, up from 3 percent this year, with the CPI expected to be constrained at around 1.5 percent.