DBS Bank said yesterday that the central bank could raise its key interest rates as soon as the end of this year because of growing inflationary pressures and a recovering economy.
Ma Tieying (馬泰英), an economist at DBS, said that with Taiwan under pressure from rising food and international crude oil prices, the central bank could open a cycle of interest rate increases when it holds its fourth quarter policymaking meeting in December.
At its latest meeting held late last month, the central bank left its key interest rates intact for the 12th consecutive quarter. The discount rate remained unchanged at 1.875 percent.
Though the overall consumer price index rose by a moderate 1.61 percent year-on-year in May and only 1.14 percent in the first five months of the year, food prices gained 4.18 percent during the month.
Meat and fruit prices posted particularly sharp increases in May of 13.95 percent and 13.55 percent respectively.
In addition, higher crude oil, coal and electricity prices contributed to a 1.17 percent increase in the wholesale price index in May.
Ma said those price increases and improving economic fundamentals are expected to lead to a tightening of monetary policy in the not-too-distant future.
In the first quarter, GDP rose 3.14 percent year-on-year, up from an increase of 2.88 percent in the fourth quarter, due to a recovery in exports and private consumption.
The government on May 23 raised its forecast for GDP growth to 2.98 percent, from an earlier forecast of 2.82 percent, and several economic think tanks were even more upbeat, expecting economic growth to exceed 3 percent this year.
Ma’s comments echoed an earlier forecast by Tony Phoo (符銘財), an economist with Standard Chartered Bank, on the economy and the central bank’s monetary policy.
Phoo said GDP growth would range between 3.5 percent and 4 percent in the second quarter, and inflation would top 2 percent in the third quarter, putting pressure on the central bank to raise interest rates.
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Sales in the retail, and food and beverage sectors last month continued to rise, increasing 0.7 percent and 13.6 percent respectively from a year earlier, setting record highs for the month of March, the Ministry of Economic Affairs said yesterday. Sales in the wholesale sector also grew last month by 4.6 annually, mainly due to the business opportunities for emerging applications related to artificial intelligence (AI) and high-performance computing technologies, the ministry said in a report. The ministry forecast that retail, and food and beverage sales this month would retain their growth momentum as the former would benefit from Tomb Sweeping Day