The central bank is likely to leave its key interest rates unchanged in its quarterly policy meeting today, to deal with rising inflationary pressure, an analyst said yesterday.
Jack Huang (黃蔭基), head of research at SinoPac Financial Holdings Co (永豐金控), said the economy is slowing down amid falling global demand, and will need a boost from the central bank through liquidity easing.
However, rising consumer prices may deter the bank from cutting interest rates, he said.
Concerns over inflation have escalated, particularly since the US Federal Reserve launched a third round of quantitative easing last week. The Fed decided to spend US$40 billion per month to buy mortgage-based securities for however long it deems necessary.
Last month, the nation’s consumer price index (CPI) rose to 3.42 percent, the highest level in four years, while the government’s composite index of monitoring indicators for July showed that the economy suffered a slump for the ninth consecutive month, flashing a “blue light” that indicated an economic downturn.
Huang said the central bank, which has been paying close attention to consumer prices amid fears that inflows of idle money from abroad will create an asset bubble, is likely to maintain the discount rate at the current 1.875 percent after today’s meeting.
At its last policy meeting in June, the central bank left interest rates unchanged for the fourth consecutive quarter.
The central bank stopped its interest rate hike cycle in the third quarter of last year in a bid to maintain ample liquidity in the market.
In addition to SinoPac Financial, several other institutions such as Citibank, Standard Chartered Bank and Barclays PLC also forecast that the central bank would leave interest rates unchanged.
Last month, the government lowered its economic growth forecast for this year from 2.08 percent to 1.66 percent.