Taiwan central bank unexpectedly raises rates, cuts GDP forecast


TAIPEI: On Thursday, Taiwan’s central bank lowered its projection for the island’s economic growth this year and unexpectedly increased its policy rate, showing ongoing concerns about inflation despite recent turbulence on the global financial markets.
The benchmark discount rate was increased by 12.5 basis points (bps), to 1.875%, by the central bank, which made this decision unanimously.
During the meeting, Governor Yang Chin-long stated that the rate increase was primarily motivated by concerns about inflation and that the objective of their monetary policy was to ensure the stability of domestic prices.
He said that Taiwan’s rate increases are small and gradual.

Eight out of the 24 economists questioned in a Reuters poll thought the central bank will raise the rate to 1.875%, although the majority of experts surveyed expected the central bank to maintain its current course.
As consumer demand slumps in key markets like China, the United States, and Europe, as well as as global inflation, rate hikes, and geopolitical challenges put further pressure on business activity, Taiwan’s trade-dependent economy is losing pace quickly.

Due to a worsening global economy, the island’s exports declined annually for a sixth consecutive month in February, reaching their lowest level in two years. The forecast is bleak for the remainder of the year at least.

Taiwan is a significant manufacturer of semiconductors used in everything from automobiles to smartphones, but due to the impact of the war in Ukraine and rising inflation on global consumer demand, the country’s GDP dropped by 0.41% in the fourth quarter of 2016.

In a statement following the meeting, the central bank stated that domestic food and electricity price increases were driving up inflation, but that it anticipated a gradual overall decrease this year.

After the recent failure of two U.S. banks, the U.S. Federal Reserve increased interest rates by a quarter of a percentage point on Wednesday, but signalled it was about to pause further rises in borrowing costs.

According to Yang, Taiwan’s banks are in sound financial standing.

The central bank once more reduced its projection for economic growth in 2023 from its prior estimate of 2.53% to 2.21%.

Also, it increased its forecast for the consumer price index for this year from 1.88% to 2.09%.