The central bank said in a report it aims for “relative stability” in prices rather than “absolute stability,” which economists said signaled the nation won’t quicken the pace of -interest-rate increases.
The government “should tackle inflation through the supply side, such as tariff cuts, which can lower the cost of imported products,” the central bank said in a report to be presented to legislators today, a copy of which was obtained by Bloomberg News.
The central bank is due to meet on March 31 to debate whether to join neighbors from China to South Korea in raising borrowing costs this year, after increasing them last year to try to avert a property bubble. Economists from Yuanta Securities Investment Consulting Co (元大投顧) and Capital Securities Corp (群益證券) said the report indicated the central bank won’t accelerate rate rises after consumer inflation climbed.
“This implies the central bank can tolerate the inflation situation currently and that it won’t accelerate its tightening cycle,” said Aidan Wang (王誠宏), an economist at Yuanta -Securities in Taipei.
Policy makers are set to raise borrowing costs 0.125 percentage point to 1.75 percent this month and to 2.125 percent by the end of this year, he said.
The nation’s consumer prices increased 1.33 percent last month from a year earlier, the fastest pace in three months, the statistics bureau said on Monday. The government last month forecast inflation of 2 percent this year compared with 0.96 percent last year.
Bank Governor Perng Fai-nan (彭淮南) and the policy board raised the nation’s benchmark rate in three steps by a combined total of 0.375 percentage point last year from 1.25 percent, as housing prices surged toward a record.
“The central bank knows the market is worried about inflation,” said Nison Chen, an economist at Capital Securities in Taipei. “The comment is trying to tell us that it won’t accelerate its pace of interest-rate increases after oil prices rose to over US$100.”
The central bank report also said tighter lending rules have slowed home-loan growth in certain areas and raised mortgage interest rates.
The monetary authority in December capped second-home mortgages in Taipei City to 60 percent from 70 percent in June and broadened the limit to other areas, while also restricting loans using land as collateral to 65 percent of the real estate’s value.
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