As expected, the nation's central bank yesterday raised the benchmark interest rate by 0.125 percentage points for the seventh consecutive quarter in the hope of steering real interest rates back toward the neutral level.
The monetary policy-setting body's decision came after the US Federal Reserve on Tuesday jacked up its key interest rate -- the federal funds rate -- by one-quarter of a percentage point, to 4.75 percent.
Taiwan's latest rate hike boosted the rediscount rate charged to commercial lenders to 2.375 percent. The central bank also increased both the secured accommodations rate and the unsecured loan rate to 2.75 percent and 4.625 percent, respectively.
"We hope that real interest rates can reach a neutral level," central bank governor Perng Fai-nan (
The bank's latest rate hike has brought the total cumulative rate hikes since September 2004 to one percentage point. But Perng declined to comment on whether the nation's real interest rates -- which refer to nominal interest rates minus the expected inflation rate, as measured by the rise in the consumer price index (CPI) -- are already in positive territory.
The central bank has expressed the opinion that negative real interest rates are not beneficial to savings. Real interest rates "still tend to stay low,'' the bank said in a statement.
Instead, Perng said that according to the Directorate General of Budget, Accounting and Statistics' estimated CPI growth of 1.71 percent for the year, rates for government bonds between six months and 10 years were already in positive territory.
This could mean that the possibility that the central bank would continue with its rate-hikes would be reduced.
However, analysts differed on this point.
"It is foreseeable that the central bank will continue to follow its US counterpart's steps by jacking up the rates slightly," said Wu Chung-shu (吳中書), a research fellow at Academia Sinica, during a phone interview.
Rate hikes are aimed at narrowing the interest spread between domestic and foreign markets to stabilize exchange rates, he said. The increases could also help to lure back capital that had flowed overseas to take refuge from the prospective alternative minimum tax (AMT) scheme, which is scheduled to take effect in three years, and to seek higher investment returns, Wu said.
"Stabilizing the financial market is one of the central bank's primary tasks," Wu said.
Chen Miao (陳淼), a researcher at the Taiwan Institute of Economic Research, said the central bank was not expected to stop hiking rates over the near term as inflationary pressure remained.
"Water, electricity, gas and energy rates have been somewhat curbed by the government and cannot reflect their real costs. If the government loosens its grip, it is certain that the CPI would not just remain at its current level," he said.
As for the much-talked-about issue of worsening consumer bad debts, Perng said the central bank had taken it into consideration when mapping out the rate-hike decision.
He said consumers defaulting on credit and cash-advance card loans would impact three areas -- society, banking systems and economic growth. The central bank would monitor the problem closely, he told lawmakers in a recent finance committee meeting, without elaborating.
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