The nation's central bank is expected to hike interest rates twice more before the year's end in light of looming inflationary pressure, which is likely to be boosted by high energy costs and wholesale prices, analysts said.
"There is still room for rate increases from a middle or long-term perspective," Chen Miao (
High oil prices remained a concern, while a rise in electricity prices next month could further spur inflation, Chen said.
Starting on Saturday, electricity prices will be raised for the first time in 23 years, with commercial users of more than 330 kilowatt-hours per month paying an additional 4.99 percent, and industrial users bearing extra costs of up to 7.98 percent regardless of their power consumption.
Also, the wholesale price index, a leading indicator for the consumer price index (CPI), which hit 6.24 percent last month -- compared with a CPI of around 1.58 percent -- could be passed on by manufacturers or vendors, who are suffering narrower margins given high raw materials prices, Chen said.
The analyst anticipated two more interest-rate increases by the end of this year.
The central bank is scheduled to hold its quarterly meeting on Thursday to discuss possible changes in monetary policy.
The market consensus expects the bank to raise interest rates for the eighth straight quarter by 0.125 percentage points this week, bringing the rediscount rate charged to commercial lenders to 2.5 percent. The US Federal Reserve is also expected to hike rates for the 17th consecutive time by a quarter percentage point to 5.25 percent on Thursday.
Standard Chartered Bank said last week that the nation's central bank could boost interest rates three more times before the end of this year, by 0.125 percentage points each time, to narrow its rate spread with the US and move negative real interest rates into the positive after factoring in inflation.
Meanwhile, TIER's monthly survey released yesterday indicated that local manufacturers are increasingly bullish about the nation's economic prospects.
Up to 44.9 percent of those polled last month said the economy would be in an upturn during the next six months, up from 28.6 percent in April, according to the survey.
By comparison, those in the manufacturing sector who had a pessimistic outlook dropped significantly to 14.3 percent, down from 28.5 percent, the poll said.
The sector contributes about 24 percent of the nation's GDP.
The optimism was driven by the coming traditional high season for the manufacturing industry in the second half, in light of relatively stable global demand, Chen said.
The Taipei-based research institute said it may update its forecast for Taiwan's economic growth next month. TIER in April cut its GDP forecast for this year to 3.91 percent, down from 4.02 percent predicted in January, because of low domestic demand.
"We may remain conservative about economic growth this year, if private consumption and investment stay weak in the current quarter," TIER vice chairman Kung Ming-hsin (
Earlier this month, Lehman Brothers downgraded its GDP forecast for Taiwan this year for the second time, to 3.5 percent from 4 percent, citing concerns over prolonged political uncertainty, which could hurt investment, and the sharp rise in household debt, which, coupled with rising interest rates, would constrain consumption.
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