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Central bank hikes benchmark interest rates for 14th time

The central bank yesterday decided to hike its benchmark interest rates for the 14th straight quarter to curb rising inflationary risks caused by rising energy and raw material costs.

The bank raised the discount rate -- the rate at which local banks borrow short-term funds directly from the central bank -- by another 0.125 percentage points to a six-year high of 3.375 percent effective today.

The rates on accommodations with collateral and without collateral were also hiked to 3.75 percent and 5.625 percent respectively.

"In light of rising energy and raw material prices, the central bank needs to raise key interest rates to stabilize consumer prices and economic growth," central bank Governor Perng Fai-nan (彭淮南) said.

The central bank forecast that consumer prices would climb at a faster annual pace of 1.8 percent next year, compared with an estimated expansion of 1.74 percent this year.

The latest interest rate hikes would also lead the actual rates closer to "the neutral level," which is a long-term goal set by the bank to stabilize the nation's financial situation, Perng said.

"They have not reached the neutral level yet," he said.

Economists said that after 14 consecutive rate hikes, the central bank might ease up its tight monetary policy next year in line with the global trend.

"If the US Federal Reserve keeps cutting key interest rates next year, Taiwan's actual interest rates may be closer to the US'. This may slow the nation's capital outflow, which is one of the bank's major concerns," said Liang Kuo-yuan (梁國源), president of the private Polaris Research Institute think tank in Taipei.

Liang said relatively lower returns from the domestic stock market and on Taiwanese currency holdings had driven people to invest overseas.

He added, however, that oil prices remain an uncertainty that could influence consumer prices and the bank's decision.

The local currency appreciated NT$0.011 to NT$32.496 against the US dollar yesterday on expectations of a mild interest rate increase.

The nation's economy would grow by a slower 4.53 percent next year, compared with a projected 5.46 percent expansion this year, the Directorate-General of Budget, Accounting and Statistics predicted.

The central bank has also set a target for M2 money supply to expand by between 3 percent and 7 percent next year, compared with a target band of 3.5 percent to 7.5 percent growth this year.
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