The central bank is expected to hike rates by 12.5 basis points next week

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Taipei, Sept. 17 (CNA) Taiwan’s central bank is expected to raise key interest rates by 12.5 basis points on Sept. 22 amid slowing consumer price index (CPI) growth locally, according to economists.

Taiwan’s central bank is likely to take less aggressive action at its next policymaking meeting than the US Federal Reserve – expected to roll out a 75 basis point hike later this month – due to a relatively small local CPI increase of 2.66 in August, the lowest since February’s 2.33 percent, said Jerry Lin (林士傑), an economist with the Taiwan Academy of Banking and Finance.

With the decline in prices for industrial and agricultural products in the global market, Taiwan’s Bureau of Budget, Accounting and Statistics said local consumer prices may stabilize further for the rest of 2022.

Lin said market expectations were that the Fed would raise key interest rates by 75 basis points after concluding a two-day policymaking meeting on Sept. 21 (US time).

The Fed’s continued hawkish approach is an attempt to quell soaring US inflation, which hit 8.3% in August.

While August’s CPI rise in the US was down from July’s 8.5%, it was still well above the Fed’s 2% warning level and topped a previous market estimate of 8.1%.

Lin said the local central bank could take additional anti-inflationary measures in the form of 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 loans.

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 with the aim of reducing liquidity levels and draining funds from 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 domestic inflation continues to moderate, the local central bank may leave interest rates unchanged at a quarterly policymaking meeting scheduled for mid-December.

However, Lin warned that a further 12.5 basis point hike was possible in December if consumer prices in Taiwan continued to rise.

Wang Jiann-chyuan (王健全), vice president of the Chung-Hua Institute for Economic Research (CIER), said he also expected the local central bank to hike rates by 12.5 basis points next week.

But Wang added that the widening rate spread between Taiwan and the U.S. market could create problems for the local central bank by driving foreign funds out of Taiwan.

On Friday, continued outflows sparked by hopes of an aggressive Fed in its rate hikes boosted the U.S. dollar, which rose NT$0.163 to NT$31.293, its highest level since Sept. 4, 2019, NT$31.365 against the Taiwan dollar.

However, Wu Meng-tao (吳孟道), an economist at the Taiwan Institute of Economic Research (TIER), said Taiwan’s relatively small, export-oriented economy meant the local central bank was unlikely to act aggressively as a counterpart in Washington.

Meanwhile, Fubon Financial Holding Co. chief economist Lo Wei (羅瑋) said the Fed would likely raise rates by 50 basis points in November and another 25 basis points in December after a rise of 75 basis points in September.

Lo said the December hike would likely mark the end of the Fed’s rate hike cycle in 2022, which will have seen it raise key rates by 375 basis points over the course of the year.

Lo said a more hawkish approach could harm the US economy and subsequently negatively impact other economies.

(By Hsieh Fang-yu, Su Ssu-yun and Frances Huang)

End article/ASG

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