The central bank yesterday lifted its benchmark interest rates by an unexpected 0.25 percentage points in an effort to avert a potential inflation risk.
The unanimous decision by the central bank's policymakers came after the US Federal Reserve raised its key federal funds interest rate by a quarter percentage point to 1.75 percent last week.
The central bank's rediscount rate will be raised to 1.625 percent from the historical low of 1.375 percent, ending almost four years of low borrowing costs.
"The central bank's move primarily aims to prevent potential inflation ... The move also underscores the central bank's concern about the fluctuations of consumer prices," central bank Governor Perng Fai-nan (
The bank yesterday also lifted the secured accommodations rate to 2 percent, while raising the unsecured loan rate to 3.875 percent.
Perng said the interest rate hikes would not affect the trade-reliant economy's ongoing growth, as the financial market will still be flush with liquidity.
"The central bank has adopted a loosening monetary policy to cope with deflation in the past two years ... Now the situation has changed, the central bank is resorting to a neutral stance," Perng said.
He declined to comment on the possibility of further hikes.
The nation's consumer price index rose 1.37 percent in the first eight months of the year, and this figure is expected to rise to 2.58 percent next year, the bank said.
Economists such as Chou Ji (周濟) at the Chunghwa Institution for Economic Research (中經院) had previously forecast an increase of 0.125 percentage points in the central bank's key rates.
"The monetary policymakers' decision has exceeded my expectations," Chou said yesterday. "I believe the central bank has factored in the surge in crude oil prices, which could weigh on the nation's inflation."
Although most local lenders tend to raise their interest rates in response to a higher borrowing cost from the central bank, Chou predicted local banks would not react immediately due to their flush liquidity.
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