Taiwan's central bank is focusing on the state of inflation before deciding whether to raise interest rates again in its next quarterly policymaking meeting scheduled for Thursday, the bank's Governor Yang Chin-long (???) said on Monday.
In a hearing held by the finance committee of the Legislative Yuan, Yang said that as the central bank was undergoing a period of silence before Thursday's meeting, he could not make any comments on interest rate fluctuations for the moment, but added that the bank's directors and supervisors would assess all economic conditions, in particular the local consumer price index (CPI) growth.
While lawmakers raised concerns that the public had bore much of the impact from rising dining-out costs and growing prices of household necessities, Yang said the central bank would focus on CPI growth as a whole instead of single items such as dining out or individual household product prices.
In November, Taiwan's CPI grew by 2.35 percent year-on-year, the smallest increase in nine months, with dining-out costs rising by 5.81 percent, the slowest growth in six months.
The November figure still stood above an alert level of 2 percent set by the central bank.
In addition, the cost of a basket of 17 government-monitored household necessities, including rice, pork, bread, eggs, sugar, cooking oil, instant noodles, shampoo and toilet paper, rose by 6.53 percent from a year earlier, moderating from almost 7 percent in October.
While the CPI growth is still above the central bank's 2-percent alert level, local economic fundamentals have been weakening in line with the global economy which economists in Taiwan said gives the central bank a headache when it comes to making decisions on monetary policy.
They mostly anticipated that the central bank will raise its key interest rates by another 12.5 basis points on Thursday to cap inflation, marking the fourth consecutive quarter of rate hikes since the bank kicked off a rate hike cycle in March.
The central bank has hiked rates by 50 basis points since March with the discount rate rising to 1.625 percent at present, while the rate on accommodations with collateral has reached 2.0 percent, and the rate on accommodations without collateral has increased to 3.875 percent.
Wu Meng-tao (???), an economist with the Taiwan Institute of Economic Research (TIER), said although the economy in Taiwan had been affected in the wake of falling global demand, the growth pace remains stable, which is expected to allow the central bank to raise interest rates by an additional 12.5 basis points on Thursday to boost the discount rate to 1.75 percent.
In late November, the Directorate General of Budget, Accounting and Statistics cut its forecast for Taiwan's gross domestic product (GDP) growth for 2022 by 0.70 percentage points from its previous estimate to 3.06 percent, and cut the 2023 forecast by 0.30 percentage points to 2.75 percent.
Echoing Wu, Huang Ying-chi (???), chief economist of SinoPac Financial Holding Co., said he also expected a 12.5-basis point increase by the central bank Thursday, and as it is possible for the CPI growth to fall below 2 percent in 2023, for the central bank to leave interest rates unchanged for the whole year.
In addition to three rate hikes since March, the central bank has also raised the required deposit reserve ratio, which is the proportion of deposits that regulators require banks to hold in reserve and not loan, by 25 basis points, twice to further tighten liquidity.
Chang Chuang-chang (???), president of the Chung-Hua Institution for Economic Research (CIER), said the central bank should not raise the required deposit reserve ratio again as the local financial industry had been working hard to offset the headwinds in operations and a move to leave the ratio unchanged would offer some relief for financial firms.
Source: Focus Taiwan News Channel