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New benchmark interest rate hike soon, report says

Responding to rising inflation, the central bank is likely to raise its benchmark interest rate by another 12.5 basis points when its board meets late this month, a report by Taipei-based Polaris Research Institute said yesterday.

The US Federal Reserve's aggressive interest rate cuts have resulted in record-high capital inflows to Taiwan and strengthened the NT dollar's appreciation against the greenback, which has helped the nation deal with the soaring price of imported goods, the report said.

With the NT likely to keep gaining strength and no signs that the nation's inflation has eased, Polaris said the central bank was expected to raise its benchmark interest rate by another 0.125 percentage point from 3.375 percent to an estimated 3.5 percent on March 27 during its quarterly board meeting, the report said.

As a result of rising food and fuel prices, the consumer price index (CPI) rose 3.89 percent last month to another high of 104.26 since December, Directorate General of Budget, Accounting and Statistics data released early this month showed.

Although the core CPI, excluding food and fuel prices, slightly declined from January's 2.71 percent to 2.65 percent last month, it remained the nation's second-highest core CPI in the past nine years and above a 2 percent level in five consecutive months -- signs of increasing inflationary pressures, the report said.

Rising prices of international raw materials and a lower CPI basis will continue to drive up the nation's inflation in the first half of this year, forcing the central bank to continue to raise interest rates to fight inflation, Polaris said.

It said previous capital outflows had eased since the Fed's fund interest rate was cut to 3 percent, with another rate cut expected tomorrow, to narrow the margin of interest rates between these two countries.

Also see: US Fed expected to cut rate anew
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