Tue, May 27, 2008 - Page 12 News List

More rate hikes in store, Goldman says

BLOOMBERG

The central bank will raise interest rates twice more this year, Goldman Sachs Group Inc said after raising its forecast for Taiwan’s inflation.

Consumer prices will rise 3.5 percent this year, more than the 2.6 percent forecast earlier, Enoch Fung, a Hong Kong-based economist at Goldman, wrote in a note yesterday.

Inflation will be 3 percent next year, compared with its earlier forecast of 2 percent, Fung said.

Premier Liu Chao-shiuan (劉兆玄) said last week that gasoline and diesel prices at state-owned refiner CPC Corp, Taiwan (中油) will rise on Monday, after being capped since November, and electricity costs will increase in July.

The higher prices are in line with President Ma Ying-jeou’s (馬英九) campaign pledge to let energy prices fully reflect costs.

“The central bank will likely see risks of spillover effects of higher utility prices on headline CPI inflation, and more importantly, inflation expectations,” Fung wrote.

“The central bank will likely continue its monetary tightening campaign by raising interest rates by 25 basis points for the remainder of this year,” he said.

The central bank has raised its benchmark discount rate on 10-day loans for 15 consecutive quarters to tame inflation.

On March 27 it increased the rate by 12.5 basis points. It will meet again next month and in September for its quarterly monetary policy review.

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