With the economy expanding by a stronger-than-expected 12.53 percent in the second quarter and a revised 13.71 percent growth in the first quarter, the central bank could raise interest rates in the second half to ease rising prices, economists said yesterday.
Cheng Cheng-mount (鄭貞茂), Citigroup Taiwan’s chief economist, said the central bank was likely to continue its close watch on still-high housing prices in the face of strong GDP growth but a benign inflation forecast.
“We believe the central bank will likely raise policy rates by another 12.5 basis points in September, but may switch to micro-prudential policy to cool housing prices instead of rate hikes, on concerns about increasing uncertainty in the global economic outlook,” Cheng said in a note.
The bank raised the benchmark rate by 12.5 basis points in June for the first time since 2008.
Cheng’s comment came after the government raised its GDP growth forecast for this year to 8.24 percent, from the 6.14 percent predicted in May.
Kevin Hsiao (蕭正義), head economist of UBS Wealth Management Research, also forecast an interest rate hike of 12.5 basis points.
“A rate hike of that scale is symbolic in nature, but the central bank would take steps to stabilize rising food costs,” Hsiao said.
The government yesterday forecast that inflation would rise 1.23 percent this year and 1.43 percent next year.
But Tine Olsen, a Sydney-based economist at Moody’s Economy.com, said in an e-mailed statement that weak private consumption could be a potential problem to ensure sustainable economic growth in the second half.
“Consumers are haunted by still-high unemployment and though the economy is adding jobs, it is not happening fast enough to absorb new entrants and the long queue of unemployed workers,” she wrote.
ADDITIONAL REPORTING BY CRYSTAL HSU
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