The central bank’s board of directors unanimously agreed to hold interest rates unchanged to calm the market after COVID-19 infections flared up in May, while expressing concern over inflation at home and abroad, the minutes of the bank’s board meeting last month showed.
The nation’s top monetary policymaker last month kept interest rates unchanged, although indicators point to an economic boom and rising inflationary risks.
“Several directors expressed their views about inflation at home and abroad,” expecting US inflation to climb higher this year before easing next year, the minutes said.
Imported inflation caused by rising global crude oil price hikes would materially affect domestic prices as Taiwan is a small open economy, one director said, adding that one-half of the 2.48 percent rise in inflation in May was attributable to increases in fuel and lubricant prices, as well as airplane fares.
The director suggested careful monitoring to see if the upturn in domestic inflation would persist or gain traction.
Import prices and the prices of goods for domestic sales both advanced rapidly in the past few months, another director said, attributing it to soaring raw material prices, as well as a lower base effect.
It is therefore necessary to pay close attention to import price movements to better understand inflation risks as the import price index and the wholesale price index serve as useful guidance, the director said.
One board director lent support to a rate hold, saying that the US Federal Reserve deemed existing inflation hikes as temporary and irrelevant to long-term trends.
The central bank expects the consumer price index (CPI) to grow a mild 1.6 percent this year, even though the inflationary gauge saw steep increases in the past few months due in part to a lower base last year.
One director said it is inappropriate to call inflation this year “mild,” as the bank’s projected 1.6 percent increase for this year would be a sharp increase from a decline of 0.23 percent last year.
The director pressed the central bank to reveal its criteria on “overheating.”
Another board director said that Switzerland, which is also a small and open economy, has an inflation target range of higher than zero but lower than 2 percent, which is similar to that of Taiwan.
Inflation is not a serious cause for worry in Taiwan, because CPI readings, fueled in part by private investment, would likely peak in the second quarter and subside thereafter, the director said.
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