Taiwan interest rate suspends its decision amid inflation rising by 3.08%
quick look
- Taiwan's central bank is expected to keep interest rates at 1.875%.
- Economists expect interest rate adjustments to be suspended until the second quarter of 2025
- Inflation fears persist amid rising consumer prices
As the world watches, Taiwan's central bank stands on the brink of a defining moment. With the quarterly meeting scheduled for Thursday, the consensus among economists points to a steady path for the island's monetary policy. This analysis examines the expected outcomes of the meeting, the reasons behind the central bank's strategic patience, and the broader economic context shaping these pivotal decisions. At the heart of the central bank's upcoming deliberations is the benchmark discount rate, which currently stands at 1.875%.
Economists set their sights on what follows this week's meeting. They expect the horizon to become clear in the second quarter of 2025. At that time, they expect a cautious reduction in the interest rate to 1.75%. These forecasts are based on hints from Central Bank Governor Yang Qinlong. He suggested maintaining the current rate until at least June 2024. His comments mentioned the possibility of adjusting inflation expectations.
Inflation: the invisible discount
The February CPI report revealed a 3.08% increase, hitting a 19-month high driven largely by Lunar New Year celebrations. The specter of inflation looms on the horizon, with pressure expected to continue from potential electricity price increases in April. Analyst Woods Chen of Yuanta Securities Investment sums up the central bank's predicament: “The central bank sees inflation as still high, and it is concerned about that.”
Since March 2022, the central bank has adjusted interest rates five times, raising them cumulatively by 75 basis points. This strategy emphasizes concerted efforts to rein in inflation, a challenge that remains despite these measures.
Economic background and forecasts
Amid these monetary policy maneuvers, Taiwan's economic landscape is both cautious and optimistic. The central bank is also set to review its growth and inflation forecasts, with a slight rise in its 2024 GDP growth forecast from 3.08% to 3.12%, supported by a rebound in technology demand.
Taiwan, the hub of the global semiconductor supply chain, felt the brunt of falling demand and global inflationary pressures, culminating in modest economic growth of 1.31% the previous year – the slowest in 14 years. The global economic community awaits the results, aware that Taiwan's monetary policy decisions resonate far beyond its shores. This highlights the interconnectedness of global markets and the common challenges of overcoming economic uncertainties.
The post Taiwan Decisions to Suspend Interest Rates Amid 3.08% Inflation Rise appeared first on FinanceBrokerage.
