Several central bank directors during last month’s board meeting advocated for a more hawkish monetary stance to cool inflation, saying that it could rise further in the absence of an intervention, board meeting minutes released yesterday showed.
One board director said that previous inflation forecasts by the central bank seemed to err on the optimistic side as Taiwan’s relatively mild inflation has resulted from government policy controls and does not reflect rent hikes.
The core consumer price index remains elevated and might not soften in the near future, as price gains have taken root in many items, the unnamed director said.
Photo: Liao Chen-huei, Liberty Times
Monetary tightening entails difficult tradeoffs, and insufficient tightening or premature easing have shown to result in protracted inflation and leave the economy prone to a stagflation trap, the director said.
Small rate hikes of 0.125 percentage points would not bring about meaningful results in taming inflation and quelling expectations, as the central bank has kept policy rates low, the director said.
Another director pushed for a rate hike of 0.25 percentage points, saying that core inflation has remained above the 2 percent mark since March last year, and the slowdown in November last year might have been a singular phenomenon.
Further, inflationary expectations play a vital role in monetary policymaking, the director said.
The longer inflation lingers, the more likely inflation expectations would build up, highlighting the importance of tackling the issue immediately, the director said.
“Financial and price stability should take priority in the central bank’s mandate over national economic development,” the director said.
Most board members advocated a rate hike of 0.125 percentage points in December on concern that a faster adjustment could hurt the economy and add undue financial burdens on households.
Another board director said that rent hikes contributed significantly to high inflation last year, and persistent house price advances could feed into rental costs and hamper price stability.
It would be advisable to raise rates 0.25 percentage points to rein in inflation, the director said, adding that rises in wages have added pressures on inflation and expectations.
One board director agreed to a 0.125 percentage rate hike, but also supported a higher adjustment to address potential rises in Asian inflation due to China’s consumption rebound.
As a a key player in global supply chains, China’s recently lifted COVID-19 curbs could spark a drastic rise in consumption and investment, the director said.
Consumption recovery in a country where the population is large and monetary policy is accommodating could drive up inflation and wage growth, the director said, adding that it could increase supply chain costs and revive inflation woes.
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