Taiwan central bank flags 'timely' tightening of monetary policy

TAIWAN'S central bank said on Wednesday (May 11) that it will tighten its monetary policy in a timely manner, but that will depend on the inflation outlook, domestic Covid-19 outbreak and what major economies are doing.

In a surprise move in March, the central bank raised its benchmark interest rate and by a much-bigger margin than some expected, citing concerns about inflation, which have been driven by supply chain disruptions from the war in Ukraine.

In a report to lawmakers ahead of the governor taking questions on Thursday, the central bank said it would adjust monetary policy in a "timely manner, which is to say in principle monetary policy will be tightened".

It will take into account domestic inflation, the impact on consumers and industry of Taiwan's surge in Covid-19 cases since the start of the year, and monetary policy moves by major economies in making that decision, the bank added in its report, a copy of which was reviewed by Reuters.

However, it noted that Taiwan's inflation remained mild compared to the United States and Europe.

Taiwan's April consumer price index rose an annual 3.38 per cent, a more than 9-year high and the ninth month in a row it had increased beyond the central bank's 2 per cent warning line, driven largely by rising global energy costs.

The US Federal Reserve last week raised its benchmark overnight interest rate by half a percentage point, the biggest jump in 22 years, and said it would begin trimming its bond holdings next month as a further step in the battle to lower inflation.

Taiwan central bank Governor Yang Chin-long said last month that the central bank would be very cautious on the pace of tightening.

ANZ said this week that it expected Taiwan's central bank will raise its base interest rate by 25 basis points at each meeting this year, to 2.125 per cent by the end of the year, due to domestic price pressures and rate rises in the United States.

The central bank holds its next scheduled quarterly rate setting meeting on Jun 16.