Taiwan braces for uptick in interest rates as economy, inflation slows – Reuters poll

TAIPEI: Taiwan’s central bank is expected to raise its key rate again this week at the same relatively soft pace as before, economists polled by Reuters said, with economic growth, exports and inflation slowing.

The central bank is expected to raise the benchmark discount rate by 12.5 basis points to 1.625% at its quarterly meeting on Thursday, according to median forecasts from 22 economists surveyed. At the last meeting in June, the bank raised it by 12.5 basis points to 1.5%.

Five of the economists surveyed said they expected stronger action, an increase of 25 basis points to 1.75%, while one economist expected an increase to 2%.

The central bank has repeatedly said it will tighten monetary policy this year, in line with its counterparts elsewhere.

Economists surveyed said they expected Taiwan to continue raising the rate until the second quarter of next year, to 2%, and then cut it from the fourth quarter of 2023.

Taiwan’s rate decision will come the day after its announcement by the US Federal Reserve. The Fed is expected to act again to control soaring inflation, with markets pricing in an interest rate hike of at least 75 basis points.

But inflation in Taiwan, never as bad as it has been in the United States or Europe, is slowing.

Its consumer price index was 2.66% higher in August than a year earlier, the lowest in six months.

The trade-dependent economy is also starting to show signs of fatigue due to slowing consumer demand in major markets of China, the United States and Europe. Taiwan’s exports last month were up just 2% year-on-year and could worsen as the year progresses.

Anita Hsu, an analyst at MasterLink Securities Investment Advisory, said the deterioration in export momentum came earlier than expected.

“Judging by Taiwan’s current fundamentals, a 12.5 basis point hike should be enough.”

While last year the economy grew by 6.45%, the fastest rate since it grew by 10.25% in 2010, it is expected to grow much slower this year, hit by lockdowns of COVID-19 in China and the impact of the war in Ukraine.

Last month, Taiwan’s statistics agency lowered its gross domestic product forecast for 2022 to 3.76% from 3.91% in May. It also reduced export prospects for the year.

The central bank will release its revised economic growth forecast for 2022 on Thursday. In June, it forecast an expansion of 3.75%.

He will also give his first prediction for next year’s economic growth.

(Poll compiled by Anant Chandak, Devayani Sathyan and Carol Lee; Reporting by Liang-sa Loh and Ben Blanchard; Editing by Devika Syamnath)