The central bank is expected to raise the benchmark rate twice more, in June and September, by 12.5 basis points each, as the three criteria it set to hike rates have been met, UBS Group AG North Asia economist William Deng (鄧維慎) said yesterday.
Central bank Governor Yang Chin-long (楊金龍) set three conditions for it to boost the interest rate: serious domestic inflation, interest rate increases in other economies and economic recovery in the domestic sector, Deng said in a statement.
The three conditions have been met, as the central bank predicts GDP growth of 4.05 percent in Taiwan this year and an annual rise in the consumer price index (CPI) of 2.37 percent, with headline inflation predicted to surpass 2 percent this quarter, Deng said.
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Meanwhile, the US Federal Reserve has lifted its rate and indicated that it is to do so a further six times this year, he said.
“We have penciled in two more rate hikes in Taiwan in 2022, each of 12.5 basis points, one at the meeting on Jun. 16 and the other on Sept. 22,” Deng said in the statement.
UBS expects Taiwan’s CPI to exceed 3 percent in the second quarter and be about 2.5 percent in the third quarter, he said.
Although UBS recently revised downward its GDP forecast for Taiwan to 2.8 percent and global GDP growth down by 1 percentage point, Taiwan’s GDP growth is expected to stay above 3 percent for the second and third quarters, Deng said.
Although the central bank’s announcement on Thursday to raise the benchmark rates by 25 basis points might have surprised the market, UBS’ prediction was close to the mark, he said.
“The Bloomberg consensus did not expect the central bank to lift interest rates this March... We were among the few expecting the bank to kick off its interest rate hike in March,” Deng said. “We expect the central bank to take its policy rate back to the pre-COVID-19 pandemic level within the year.”
“A hike of 25 basis points may seem usual for other monetary authorities, but Taiwan’s central bank had only taken a 12.5 basis point step for all rate hikes since 2007,” he said. “The scale of the rate hike [on Thursday] was bigger than usual.”
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