The central bank could still raise interest rates next month, a board member said, prompting a rise in the nation’s bond yields yesterday.
Taiwan Institute of Economic Research (TIER, 台灣經濟研究院) president Chang Chien-yi (張建一) told Bloomberg News in a telephone interview that he sees elevated consumer prices remaining a challenge this year, and said it was too optimistic to expect annual inflation to fall below 2 percent.
Last year’s overall consumer price index (CPI) reached 2.95 percent, figures from the Directorate-General of Budget, Accounting and Statistics showed.
Photo: Tyrone Siu, Reuters
Those price pressures — along with the assumption that the economy would grow at an acceptable rate this year, despite expectations of a slowdown — leave room for the central bank to hike the benchmark interest rate next month, Chang told a Bloomberg reporter on Friday.
The yield on five-year government bonds yesterday rose 7 basis points to 1.14 percent after Chang’s remarks were made public.
The 10-year yield increased 6 basis points to 1.253 percent.
The jump was likely because investors had mostly been expecting the central bank to refrain from raising its policy rate again, Agricultural Bank of Taiwan (全國農業金庫) trader Stanford Chen said.
Yesterday’s comments were also more hawkish than prior statements Chang had given to local media about the possibility of a rate increase, Taipei Fubon Commercial Bank (台北富邦銀行) trader Greenland Chen said.
Some economists had expected the central bank to stop tightening monetary policy after it raised its benchmark rate to 1.75 percent in December, given projections for cooling prices and as economic growth slows.
However, the prospect of continued price pressures has sparked concerns in the past few weeks, with CPI rising to 3.04 percent last month from a year earlier — much higher than economists estimated.
Prior to that data release, central bank Deputy Governor Chen Nan-kuang (陳南光) had been voicing concerns about higher prices, saying early this month that the monetary authority should take more proactive steps to keep inflation under control and avoid a hard landing for the economy,
In his interview with Bloomberg News, Chang acknowledged concerns about continuing to raise rates given the economic outlook this year, adding that further hikes could affect spending.
That is a challenge given how much domestic demand is expected to drive growth this year.
However, he said that it would be okay for GDP to expand 2.5 percent this year.
Taiwan’s monetary policy does not necessarily have to follow the pace of the US Federal Reserve’s more aggressive interest rate hikes, he said.
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