Private think tank Polaris Research Institute (寶華綜合經濟研究院) said yesterday the central bank may start raising policy interest rates from the third quarter at the soonest, if Taiwan’s economy picks up as expected and the government revises oil and electricity prices upward as planned.
The comments came as the Taipei-based institute trimmed its forecast for Taiwan’s GDP growth for this year to 3.88 percent, from the 3.93 percent estimated in December.
Polaris president Liang Kuo-yuan (梁國源) cited weaker-than-expected growth in the first quarter as the reason for the downward revision.
“The first quarter is almost over, and we see economic momentum for the period below what we had expected,” Liang told a press conference.
The institute revised its forecast for first-quarter GDP growth downward to 0.85 percent, the lowest expected quarterly growth rate for the year, from the 2.13 percent it estimated in December.
In the subsequent three quarters, annual GDP growth is expected to climb continuously, at 3.16 percent, 4.62 percent and 6.62 percent respectively, Polaris said in a statement.
Recent economic indicators showed that Taiwan’s economy is “getting really close” to the bottom, Liang said, adding that he expects the economic cycle to bottom out by the second quarter.
However, Liang said rising crude oil prices led by tensions in the Middle East have become a major uncertainty for the global economy this year, which may also raise inflationary pressure in Taiwan.
“If the international crude oil price returns to the record-high level of US$147 a barrel set in 2008, it will result in a serious problem for the global economy,” he said.
Domestically, the Cabinet’s move to raise oil and electricity prices will be the other risk for Taiwan’s consumer prices this year, Liang said.
These factors prompted the institute to revise its inflation forecast for this year to 1.57 percent, from the 1.42 percent estimated previously, with the annual growth in headline inflation in the third quarter expected to stand at 2.09 percent, the highest level this year.
Liang said that if inflation exceeded 2 percent, the central bank might raise interest rates to rein it in.
“The central bank may increase its policy interest rates from the third quarter, if the government revises energy prices during the period and pressure on consumer prices starts to be seen,” he said.
However, Liang said the pace of economic growth will be the other important factor considered by the central bank when making a decision on its interest-rate policy. He said the bank would only raise policy rates amid a stable pickup in the economy.
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