Taiwan’s central bank, Central Bank of the Republic of China (Taiwan) unanimously raised the policy benchmark discount rate to 1.75% from 1.625%, in line with market forecasts and pushing borrowing costs to the highest since 2015 at its December meeting. The central bank Governor said if it’s certain that the inflation rate is below 2%, the bank will stop raising interest rates, although there is still a lot of uncertainty. Committee noted that the latest inflation reading show inflation declined in recent months, it is expected to remain above 2% this year before dropping to below 2% next year
“At the meeting today, the Board decided to raise the discount rate, the rate on refinancing of secured loans, and the rate on temporary accommodations by 0.125 percentage points each to 1.75%, 2.125%, and 4%, respectively, effective December 16, 2022.
Inflation
The Bank noted that for the first eleven months of the year, the annual growth rates of CPI and core CPI averaged 2.97% and 2.60%, respectively. For the year as a whole, the Bank forecasts the inflation rate and the core inflation rate to be 2.93% and 2.59%, respectively
Looking ahead to next year, global supply chain gridlocks would likely be resolved, and markets expect crude oil and other raw material prices to trend lower than this year. The Bank forecasts the CPI and core CPI annual growth rates to drop to 1.88% and 1.87%, respectively, in 2023. External forecasts by domestic and foreign institutions also project Taiwan’s inflation rate to come down next year.
- The annual inflation rate of Taiwan eased to 2.35% in November 2022, compared to an upwardly revised 2.74% in the previous month and below market expectations of 2.50%.
- It was the lowest inflation rate in nine months, as prices increased at a slower pace for most sub-indexes: food (4.12% vs 5.18% in October); clothing (1.69% vs 1.76%); housing (2.35% vs 2.43%); transportation & communication (0.69% vs 1.53%); health (1.45% vs 1.94%); and miscellaneous goods (1.79% vs 2.20%).
- However, costs rose faster for education & entertainment (2.03% vs 1.24%).
- On a seasonally adjusted monthly basis, consumer prices grew by 0.07%, following a 0.13% rise in October
Foreign Exchange
The Bank said; The NT dollar exchange rate is in principle determined by market forces. Nonetheless, when seasonal or irregular factors (such as massive inflows or outflows of short-term capital) lead to excess volatility and disorderly movements in the NT dollar exchange rate with adverse implications for economic and financial stability, the Bank, in line with its statutory mandates, will step in to maintain an orderly market.
Source: Taiwan Central Bank
From The Traders Community Research Desk