Taiwan central bank sees inflation coming under control; keeps rate steady

TAIWAN’S central bank said on Thursday (Jun 13) it saw inflation gradually coming down for the rest of the year but the overall tone of monetary policy remained hawkish.

Taiwan’s inflation has never been as high as in major Western economies – the consumer price index (CPI) in May rose by 2.24 per cent – but the central bank has made bringing it down a priority.

It has also had to worry less about impacting economic growth, given that Taiwan’s export-reliant economy has been getting a lift from global demand for computer chips, especially from the artificial intelligence boom.

Governor Yang Chin-long told reporters after the quarterly rate-setting meeting – where the central bank left the benchmark discount rate at 2 per cent as expected – that he saw inflation trending down. The discount rate has been at this level since March.

But “the tone of monetary policy is further tightening”, Yang said, adding unlike major western economies, Taiwan’s rate policy change would be “gradual and small” thanks to relatively lower inflation in Taiwan.

“Tightening of monetary policy will help curb inflation expectations.”

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In a Reuters poll, 29 out of 31 economists predicted the central bank would keep the rate unchanged.

The central bank trimmed its CPI forecast for this year to 2.12 per cent, from a previous prediction of 2.16 per cent, still above the 2 per cent mark the market views as the central bank’s red line of concern.

On Wednesday, the US Federal Reserve kept rates on hold and pushed out the start of rate cuts, as it expects only a gradual decline in inflation though it indicated it would stick with plans to cut borrowing costs this year.

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Taiwan raises 2024 GDP on stronger exports, domestic consumption

Taiwan’s central bank raised its 2024 estimate for economic growth to 3.77 per cent, from a March forecast of 3.22 per cent, pointing to factors such as the rising demand for “newly emerging technology applications” including AI.

The economy grew at its slowest pace in 14 years in 2023.

In a measure aimed at curbing property price rises, the central bank also raised the ratios it sets for banks’ reserve requirements by 25 basis points.

Yang said that move would make banks more cautious about their investments and new lending, reducing inflows into the property market and locking in more than NT$120 billion (S$5 billion).

First Capital Management analyst Chengyu Liu said there might be another reserve requirement rise at the next meeting in September, though not a rate hike.

“It is not all-round tightening that is needed,” Liu added. REUTERS