Economists forecast rate hike of 12.5 basis points

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POSITIVE VISION:
The central bank could raise the reserve requirement ratio to control inflation and could forego further rate hikes in December if inflation slows

The central bank would likely raise key interest rates by 12.5 basis points (bps) on Thursday amid slowing inflation, economists said.

The bank is expected to be less aggressive than the U.S. Federal Reserve as Taiwan’s inflation rate rose to 2.66% last month, the lowest since February’s 2.33%, economist Jerry Lin said. (台灣金融研訓院) of the Taiwan Academy of Banking and Finance.林士傑) said.

Local consumer prices could stabilize further this year as prices for industrial and agricultural goods fall on the global market, the General Directorate of Budget, Accounting and Statistics said.

Photo: George Tsorng, Taipei Times

The Fed is expected to raise key interest rates by 75 basis points following a meeting of the Federal Open Market Committee slated to end on Wednesday, Lin said.

The Fed’s continued hawkish approach is an attempt to stifle soaring inflation in the United States, which hit 8.3% last month, beating market expectations of 8.1 growth. %,” Lin said.

Lin said Taiwan’s central bank could take additional anti-inflationary measures, such as a 25 basis point increase in the reserve requirement ratio, which is the fraction of deposits that regulators require banks to hold. reserves and not lends.

At its June meeting, the central bank raised interest rates by 12.5 basis points, with a discount rate of 1.5%, and also raised the reserve requirement ratio by 25 basis points. base to reduce liquidity in the market.

Since the start of a rate hike cycle in March, the Fed has raised interest rates by 225 basis points, while Taiwan’s central bank has only raised rates by 37.5 basis points .

Lin said if inflation in Taiwan continues to moderate, the central bank may leave interest rates unchanged at a quarterly policymaking meeting in December.

However, a 12.5 basis point hike would be possible in December if consumer prices continue to rise, he added.

Chung-Hua Economic Research Institution (中華經濟研究院) Vice President Wang Jiann-chyuan (王健全) said he also expects the central bank to raise rates by 12 .5 basis points this week.

However, Wang added that the widening rate differential between Taiwan and the United States could create problems for the local central bank by driving foreign funds out of Taiwan.

On Friday, continued outflows driven by expectations of an aggressive Fed hike boosted the US Dollar, which rose NT$0.163 against the New Taiwan Dollar to NT$31.293, its highest level since $31.365. NT recorded September 4, 2019.

Taiwan Institute of Economic Research (台灣經濟研究院) economist Wu Meng-tao (吳孟道) said Taiwan’s relatively small, export-oriented economy means the central bank is little likely to act as aggressively as the Fed.

Fubon Financial Holding Co (富邦金控) chief economist Rick Lo (羅瑋) said the Fed is expected to raise rates by 50 basis points in November and 25 basis points in December after a expected to rise 75 basis points this month.

Lo said a hike in December would mark the end of the Fed’s rate hike cycle for this year, which would see it raise key rates by 375 basis points.

A more hawkish approach could harm the US economy and negatively affect other economies, Lo said.

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