The central bank yesterday raised its discount rate for the third time this year by 0.125 percentage points and hiked lenders’ required reserve ratio by 0.25 percentage points as it seeks to tame inflation, which remains above 2 percent.
The move came after it said it believed that consumer prices would this year increase 2.95 percent, while GDP growth would slow to 3.51 percent, compared with the 3.75 percent it projected three months earlier.
“The policy decision fell short of unanimous support this time as two board members favored adjustments of 0.25 percentage points to curb rent and house price hikes,” central bank Governor Yang Chin-long (楊金龍) told an online media briefing.
Photo courtesy of the central bank
Yang indicated that the central bank might halt tightening in December if consumer prices indicate a slowdown in inflation.
The consumer price index (CPI) growth would likely weaken to 1.88 percent next year with core CPI — excluding volatile energy and vegetable prices — at 1.87 percent, the central bank said.
Most research institutes are looking at lower CPI data next year, warranting a pause in monetary tightening, Yang said.
“It is too early to tell now in light of rising uncertainty,” he said. “The central bank will closely monitor economic changes in the coming three months.”
Interest rate hikes are not the best policy tool in battling imported inflation, Yang said.
The Cabinet has therefore cut tariffs on energy and raw materials imports, he added.
The US and Europe have no choice but to embark on drastic rate hikes to fight fast-growing inflation, whereas China and Japan continue monetary easing to support their economies, Yang said.
Taiwan should set a monetary policy that serves its own interest, Yang said, adding that the central bank favored draining excessive liquidity by raising required reserve ratios.
The hike of 0.25 percentage points in the reserve ratio would take up to NT$120 billion (US$3.8 billion) out of the market, Yang said.
The governor said the broad money supply measure of M2 should grow within the targeted range of 2.5 to 6.5 percent next year, from 7.66 percent in the first eight months of this year.
M2 refers to mutual funds, time deposits, time saving deposits, foreign currency deposits, cash and cash equivalents.
Yang rejected claims that Taiwan’s widening interest rate gap with the US has led to capital flight and local share corrections.
Poor TAIEX showings have much to do with US tech share declines, as many Taiwanese firms supply electronic components to US brands, he said.
The ongoing capital flight weighs on the local currency, which had shed 11 percent against the US dollar this year as of Tuesday, Yang said, calling the pace below his limit for market stability and orderliness.
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