The central bank is expected to increase interest rates by 0.125 percentage points, or 12.5 basis points, at its boarding meeting on Thursday amid continued inflationary pressure and the recent weakening of the New Taiwan dollar against the greenback, economists said.
This would be the fifth straight quarter that the central bank has hiked interest rates, while bringing the nation’s discount rate to 1.875 percent, they added.
Cheng Cheng-mount (鄭貞茂), chief economist at Citigroup in Taipei, said the central bank would continue to raise rates by 12.5 basis points each quarter this year as inflation continues to rise.
The consumer price index increased 1.66 percent from a year earlier last month, the highest level since a 2.34 percent increase in February last year, the -Directorate-General of Budget, Accounting and Statistics (DGBAS) reported on June 7.
“Although inflationary pressure in Taiwan is likely to remain relatively mild in the second half of this year, it is still on a slow upward trend, unlike in some Asian counterparts where inflation could peak in the second or third quarter this year,” Cheng said on Friday.
In addition, the central bank has been relatively “behind the curve” with its rate changes when compared to other Asian central banks, with an increase of just 50 basis points since the start of the rate increasing cycle, making it even more likely that the bank would continue to raise interest rates, Cheng said in a report.
Wang Lee-rong (王儷容), director of the center for economic forecasting at the Chung-hua Institution for Economic Research (中華經濟研究院), said the central bank would raise its policy rates by 12.5 basis points as current real interest rates remain at an historically low level.
“Despite recent concerns about a slowing global economy, the central bank could keep to its rate--hiking cycle, as the recent weakening of the NT dollar may prove insufficient to help control inflation,” Wang said by telephone yesterday.
However, the central bank might choose not extend its -selective credit control measures to cool down the housing market this time as the government’s luxury tax and higher policy rates have had a definite impact on real-estate transactions, Wang said.
Barclays Capital, which expects Taiwan to continue tightening on improved employment and wage indicators, said the bank would raise its policy rate by 12.5 basis points every quarter this year, while passing on 10 basis points to 12 basis points of the increase to the 90-day negotiable certificates of deposit rate, to reflect concerns about rising consumer prices.
However, the president of Taiwan Research Institute (台灣綜合研究院), Wu Tsai-yi (吳再益), said that falling private investment would be a bigger risk for the nation’s economy this year than inflation, an indication that the central bank could choose to leave current policy rates untouched on Thursday.
“Taiwan has had a liquidity overflow for a long time, so even if the bank increases rates, the symbolic meaning would be greater than its actual impact,” Wu told the Taipei Times yesterday.
As consumer prices are likely to remain stable this year, Wu said the stronger NT dollar against the US dollar in the second half of the year would be sufficient to keep inflation under control.
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