The central bank yesterday raised the benchmark interest rate for the eighth straight quarter by 0.125 percentage points to help ward off inflationary pressure and steer real interest rates back to the neutral level.
The latest rate increase saw the rediscount rate charged to commercial lenders boosted to 2.50 percent.
The central bank also raised both the secured accommodations rate and the unsecured loan rate to 2.875 percent and 4.75 percent respectively.
As the US Federal Reserve was expected to advance rates for the 17th consecutive time by a quarter percentage point to 5.25 percent yesterday, Taiwan's smaller range of rate hikes has aroused concerns that the rate spread between the two nations is widening.
But Perng Fai-nan (彭淮南), governor of the nation's central bank, said yesterday that monetary policies must be made in accordance with each nation's economic conditions, including inflation, capital flows and macro-economic factors.
"The US' inflation rate is higher than Taiwan's. You cannot ask [the central bank] to match the Fed's policies," he said.
Taiwan's consumer price index (CPI) reached an annual growth of 1.37 percent for the first five months of the year, according to the government's statistics agency, which had forecast the CPI in the second half of the year to surpass that in the January-to-June period.
"We hope CPI growth for the year can be kept under 2 percent," Perng said.
Although the central bank has raised the benchmark rate for an accumulative 1.125 percentage points since October 2004, Perng appeared to hold the door open for the next rate hike.
“Our studies show that Taiwan's real interest rates are still at some distance away from the neutral level,” Perng said.
Real interest rates are the value of the prime rate minus the CPI.
Chou Ji (周濟), the economic forecast director at the Chung-Hua Institute of Economic Research (中經院), said the central bank's latest rate hike was not enough to narrow the rate spread with the US.
“I expected the bank to ratchet rates up by 0.25 percentage points at a time, especially since the CPI could push even higher in the coming season,” Chou said, adding that the central bank would continue to raise rates in the next quarter.
Perng yesterday reiterated the bank's policy to step in when seasonal or irregular factors (such as massive movements of short-term capital, or “hot money”) caused the New Taiwan Dollar to become more volatile than could be explained by economic fundamentals.
As of Wednesday, the NT dollar had depreciated by 2.46 percent against its US counterpart from a year ago. The local unit reached as high as NT$31.388 on May 10, according to the bank's data.
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