The central bank yesterday raised its key interest rates by 0.125 percentage points for the fifth straight quarter on the back of rising inflationary pressure in the second half of the year and continuing economic expansion.
The latest hike brought the discount rate to 1.875 percent, the collateralized loan rate to 2.25 percent and the unsecured loan rate to 4.125 percent, effective today, the central bank said.
“Although the nation’s inflation remains more stable than in most other countries, we have decided to maintain the pace in rate hikes to help control the public’s prospective attitude toward consumer prices,” central bank Governor Perng Fai-nan (彭淮南) told a media briefing after yesterday’s quarterly board meeting.
The bank expects the nation’s full-year consumer price index to increase less than 2 percent, a more optimistic view than that of the Directorate-General of Budget, Accounting and Statistics, which forecast 2.1 percent growth in May.
“If Taiwan’s weather conditions in the summer are as good as last year’s, the inflation rate could grow less than 2 -percent this year,” Perng said.
The appreciation of the New Taiwan dollar against the US dollar also helps decrease inflationary pressures, Perng said, adding that the NT dollar’s rate is like a double-edged sword, which could also restrict the growth of external trade.
That makes the bank inclined to a mild and stable currency strategy for the NT dollar, he added.
Perng said the bank also discussed external uncertainties — including a weaker economic recovery in the US, a lingering supply chain disruption following Japan’s March 11 earthquake and tsunami and the eurozone sovereign debt crisis — at the board meeting amid concerns that they would restrain the economy’s performance.
However, the bank decided to maintain the decision to increase rates amid continuing stable economic expansion in Taiwan and in other emerging markets, he said.
The bank did not further tighten credit controls on land purchases and mortgages, providing more evidence that the threat of a property bubble has been controlled by the government.
The central bank’s decision matched market estimates and was an appropriate one, said Donna Kwok (郭浩庄), who covers the Greater China economies for HSBC in Asia.
“With rates still so low and global trade coming into the slow end of the cycle, it is an opportune moment to tighten monetary policy without putting undue pressure on the currency,” Kwok said in a research note yesterday.
Unless inflation unexpectedly spikes, Kwok expects the central bank to keep raising rates by 0.125 percentage points for the next six straight quarterly meetings, bringing the rediscount rate to a neutral 2.625 percent at the end of next year.
Vincent Tsui (徐天佑), an economist at Standard Chartered Bank, forecast the same cycle as Kwok in a separate note yesterday, as the bank will continue to remain vigilant on the risk of asset price inflation.
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