Taiwan set for mild interest rate rise with economy, inflation slowing

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TAIPEI — Taiwan’s central bank is expected to raise its policy rate again this week at the same, relatively mild pace as before, according to economists polled by Reuters, with economic growth, exports and inflation all slowing.

The central bank is likely to lift the benchmark discount rate by 12.5 basis points to 1.625% at its quarterly meeting on Thursday, according to the median forecast of 22 economists surveyed. At the last meeting in June, the bank had raised it by 12.5 basis points to 1.5%.

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Five of the economists surveyed said they expected stronger action, a 25-basis-point rise to 1.75%, while one economist predicted it rising to 2%.

The central bank has repeatedly said it will tighten monetary policy this year, in line with counterparts elsewhere.

The polled economists said they expected Taiwan to keep raising the rate until the second quarter of next year, to bring it up to 2%, and then cut it from the fourth quarter of 2023.

Taiwan’s rate decision will come the day after the U.S. Federal Reserve announces its own. The Fed is again expected to act to control spiraling inflation there, with markets pricing in an interest rate hike of at least 75 basis points.

But Taiwan’s inflation, never as bad as it was in the United States or Europe, is slowing.

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Its consumer price index was 2.66% higher in August than a year earlier, the lowest reading in half a year.

The trade-dependent economy is also beginning to show signs of fatigue due to softer consumer demand in major markets China, the United States and Europe. Taiwan’s exports last month rose just 2% on-year and could get worse as the year progresses.

MasterLink Securities Investment Advisory analyst Anita Hsu said the worsening of export momentum had come earlier than expected.

“Judging from Taiwan’s current fundamentals, a 12.5 bps rise should be enough.”

While the economy last year grew 6.45%, the fastest rate since it expanded 10.25% in 2010, it is expected to grow much more slowly this year, hit by COVID-19 lockdowns in China and the impact of the war in Ukraine.

Taiwan’s statistics agency last month lowered its gross domestic product forecast for 2022 to 3.76%, down from May’s 3.91% forecast. It also trimmed the export outlook for the year.

The central bank will give its revised forecast for 2022 economic growth on Thursday. In June, it predicted a 3.75% expansion.

It will also give its first prediction for next year’s economic growth. (Poll compliled by Anant Chandak, Devayani Sathyan and Carol Lee; Reporting by Liang-sa Loh and Ben Blanchard; Editing by Devika Syamnath)

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