Taipei, March 19 (CNA) At a time when the world’s major central banks have tightened monetary policies to deal with mounting inflationary pressure, Taiwan’s central bank will offer two more interest rate hikes after the increase in Thursday, UBS, a Swiss banking group, predicted.
In a statement on Friday, UBS North Asia economist William Deng (鄧維慎) said the central bank is expected to announce a rate hike in June and another at the September meeting.
In a surprise move, the central bank said it had decided to raise its key interest rates by 0.25 percentage points at its quarterly policymaking meeting on Thursday after the US Federal Reserve took a similar decision on Wednesday. The Fed even hinted that six more rate hikes would come later this year.
The market had previously expected Taiwan’s central bank to leave its key interest rates unchanged for the eighth consecutive quarter in March or simply increase the rates of increase by 0.125 percentage points, as the inflation problem to which Taiwan was facing was not as urgent as the problem the United States needed to tackle. .
After the rate hike, the central bank discount rate rose to 1.375% from an all-time low of 1.125%, with the rate on secured housing rising to 1.75% and the rate on unsecured housing rising to 3.625%. This is the first rate hike by the central bank in more than 10 years.
In February, Taiwan’s consumer price index rose 2.36% to exceed the 2% alert level on the heels of soaring crude and commodity prices, while United States saw its CPI climb 7.9%, the biggest increase in more than 40 years.
Related: Inflation continues in Taiwan in February (8 March)
Deng said UBS was among the few to expect the central bank to launch a rate hike cycle in March, adding that the central bank would bring its key rate back to pre-COVID levels within the year.
Deng said while a 25 basis point hike may seem usual for other monetary authorities, the magnitude of March’s rate hike is larger than usual for Taiwan because the local central bank n has only increased by 12.5 basis points for all rate hikes since 2007.
Deng said the central bank’s decision surprised the market but came close to UBS’s expectations.
In addition to a decision to increase the discount rate, the central bank also raised interest rates for negotiable certificates of deposit (NCDs), which approximate short-term market rates, 25 basis points. basis for all durations.
Deng said the central bank is expected to raise key interest rates by 0.125 percentage points at the June 16 meeting and another 0.125 percentage points at the September 22 meeting.
2022 GDP Outlook
The economist said UBS lowered its forecast for Taiwan’s gross domestic product (GDP) growth to 2.8% for 2022 following a weaker global increase, while the local labor market is expected to remain stable, the economy is expected to grow more than 3% in the second and third quarters of this year.
On Thursday, the central bank raised Taiwan’s GDP growth to 4.05% from the previous estimate of 4.03% made in December 2021.
The central bank said the local consumer price index (CPI) had been above 2%, the alert threshold, for several months, and that was expected to continue into the third quarter of this year.
However, the central bank expects the local CPI to fall below 2% in the fourth quarter, as it raised its growth forecast for the domestic CPI and the core CPI, which excludes fruits, vegetables and energy, from 1.59% and 1.45% to 2.37%. and 1.93%, respectively.