The Bank of Taiwan (臺灣銀行), the nation’s biggest state-run bank, will raise interest rates today after the central bank increased its benchmark interest rates last week. Other major state-run commercial lenders will follow suit this week.
The bank will hike the interest rate on various term deposits and term savings deposits by between 0.01 percentage points and 0.125 percentage points in response to the central bank’s move, it said in a statement on its Web site on Friday.
The rate increases also reflect funding conditions in the market and market competition, it added.
The state-owned Land Bank of Taiwan (土地銀行) and the Taiwan Cooperative Bank (合作金庫) said in separate statements on Friday that they would raise interest rates on various savings and deposits by between 0.01 percentage points and 0.125 percentage points, effective today. Other local banks are also expected to increase rates this week.
The central bank unexpectedly announced on Thursday it would raise its discount rate by 12.5 basis points to 1.375 percent from an historic low of 1.25 percent, effective Friday.
It was the central bank’s first rate move since February last year.
The interest rates on both secured and unsecured loans will also increase to 1.75 percent and 3.625 percent respectively, the central bank said on Thursday.
On Friday, on its open market operations, the central bank also increased the interest rates for the 30-day, 91-day and 182-day negotiable certificates of deposit (NCD) by 6 basis points to 0.63 percent, 0.67 percent and 0.77 percent respectively, which gave room for commercial lenders to raise their rates for customers.
On Sept. 26, 2008, the central bank began a spate of rate cuts, which eventually totalled 237.5 basis points, until February last year to help boost the domestic economy amid the global financial crisis and economic slowdown.
The central bank will likely increase interest rates by 12.5 basis points each time in the next few quarters as it aims to bring rates back to what Central bank Governor Perng Fai-nan (彭淮南) on Thursday described as “normal levels,” a Citigroup Taiwan Inc economist said.
“The central bank has decided to begin the tightening cycle for policy rates. However, we expect the pace of normalization to be fairly slow,” Cheng Cheng-mount (鄭貞茂) wrote in a report released on Friday.
Morgan Stanley economist Sharon Lam (林琰) said in her note to clients on Friday that the central bank’s latest rate hike of 12.5 basis points was an “asymmetrical move,” compared with its previously aggressive cut of 237.5 basis points in total.
“We believe it is going to take a long time for Taiwan’s policy rate to go back to the pre-crisis level of 3.625 percent,” Lam said.
According to a Dow Jones Newswires survey of 11 economists, 10 expected the central bank to raise interest rates by 12.5 basis points in the September meeting and six predicted another hike of 12.5 basis points in December.
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