The central bank is expected to increase rates again during its quarterly board meeting next month in a bid to curb growing inflation risks, economists said.
As the nation’s economic growth is expected to remain robust this year, the central bank will have the leeway to tighten its monetary policy.
Taiwan’s GDP is expected to expand 4.92 percent this year from last year, according to a government forecast last week.
As the output gap, meaning the difference between potential GDP and actual GDP, is firmly in positive territory, the central bank will continue to move to normalize interest rates by raising its discount rate 12.5 basis points to 1.75 percent, Barclays Capital said in a report released yesterday.
In contrast with the interest rate increases, Barclays Capital said the central bank would start passing more of each rate hike into negotiable certificates of deposit rates, possibly by 9 basis points, after next month’s meeting.
Ma Tieying (馬鐵英), an economist with Singapore-based DBS Bank (星展銀行), told a media briefing that the central bank will increase key interest rates as continuing economic growth in Taiwan has also raised the risk of inflation.
“To tame property prices and reduce inflation risk, the central bank is likely to increase key interest rates by 25 basis points every quarter this year,” Ma said.
Although many observers think growing inflationary concerns necessitate more aggressive rate hikes by the central bank, Cheng Cheng-mount (鄭貞茂), chief economist at Citigroup in Taipei, said that the nation’s cautious GDP outlook suggests that the central bank may just raise the rate by 12.5 basis points.
Cheng has a relatively cautious outlook on the nation’s economic growth compared with his peers and the government. He expects Taiwan’s GDP to grow 4.5 percent annually this year.
“Although the nation had strong performances in both consumer spending and exports last month, the cautious view for net exports led to our relatively conservative view about Taiwan’s economic growth,” he said.
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