The central bank is expected to continue to increase interest rates next quarter to address persistent inflation, after it raised the rates for the third consecutive quarter last week, economists said.
The central bank is also expected to retain its measured pace of monetary tightening given the prospect of moderating inflation next year and signs of economic slowdown, they said.
The bank is likely to raise its policy rates by another 12.5 basis points in December, UBS Group AG North Asia economist William Deng (鄧維慎) said in a report on Friday.
Photo: Tyrone Siu, Reuters
However, “the moderating inflationary pressure and the increasing uncertainty in external environment would limit the probability of a re-acceleration of the rate hike pace,” Deng said.
The central bank on Friday last week increased its discount rate by 12.5 basis points to 1.625 percent.
It also increased the reserve requirement ratios (RRR) on New Taiwan dollar demand deposits and time saving deposits by 25 basis points, effective from Saturday this week.
Deng said the increase in RRR is not expected to have a marked impact on the local banking system’s liquidity and loan growth momentum, as the loan-to-deposit ratio remains slightly above a historic low.
The central bank last week trimmed its growth forecast for the local economy for this year to 3.51 percent from 3.75 percent, while raising its inflation estimate to 2.95 percent from 2.83 percent.
UBS forecasts 3.3 percent GDP growth and 2.9 percent inflation, Deng said.
Next year, the economy is forecast to grow 3 percent with 1.4 percent inflation, Deng said.
“Although the external growth uncertainty is likely to remain elevated, we believe that recovery of private consumption could work together with a resilient investment trend to support the stability of domestic growth,” Deng said.
United Overseas Bank Ltd (UOB, 大華銀行) said Taiwan’s GDP would expand 3.3 percent this year and grow 2.8 percent next year, after taking into consideration further markdown in global outlook.
As headline inflation likely peaked in June at a 14-year high of 3.59 percent, the consumer price index is expected to moderate in the first half of next year to about the central bank’s threshold of 2 percent, UOB said in a separate report on Friday.
“We stick to our projection that the central bank will continue to lift interest rates by a modest 12.5 basis points in both the fourth quarter of this year and the first quarter of next year, to bring the discount rate to a terminal level of 1.875 percent,” UOB economist Chen Ho Woei (陳浩偉) said. “The prospect of more hawkish moves is limited unless the inflation trajectory turns unexpectedly higher.”
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