Taiwan central bank surprises, raises benchmark rate to curb inflation

[TAIPEI] Taiwan's central bank raised its benchmark interest rate in a surprise move on Thursday (Mar 17) and by a much bigger margin than some expected on concerns about inflation, and also slightly revised up the trade-reliant island's 2022 growth outlook.

Taiwan's rate decision comes after the US Federal Reserve on Wednesday raised interest rates for the first time since 2018 with a quarter-percentage-point increase in the target federal funds rate.

Taiwan's central bank raised the benchmark discount rate by 25 basis points (bps) to 1.375 per cent from 1.125 per cent, where it had stood since March of 2020, when it cut the rate to a historic low to weather the Covid-19 pandemic.

Sixteen of 20 economists in a Reuters poll had expected the central bank to keep the rate on hold at its quarterly monetary policy meeting. The other 4 economists had forecast a 12.5 bps increase.

It also nudged up its 2022 estimate for gross domestic product (GDP) growth to 4.05 per cent from 4.03 per cent seen in December, saying export momentum remained strong.

On inflation, the central bank said it saw the consumer price index rising 2.37 per cent in 2022, revising up the outlook from 1.59 per cent predicted in December.

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In a statement, it said that the rate hike would be "conducive to curbing anticipation of domestic inflation and would help maintain price stability" as well as stable economic and financial development.

The bank also cited the Fed's tightening move, as well as"high pressure from imported inflation" for its rate decision, referring to the leap in commodities prices from the war in Ukraine. REUTERS