Taiwan’s central bank raised its key policy rate for the second time in a row to reduce inflationary pressures and to stimulate domestic demand that is affected by the recent surge in pandemic conditions and an uncertain global outlook.
The central bank board unanimously decided to raise the benchmark discount rate by 0.125 percentage points to 1.500 percent, as expected.
The previous change in the rate was a quarter basis point hike in March from a record low 1.125 percent, where it had been since early 2020.
The bank also lifted the reserve requirement ratios by 0.25 percentage points as part of the policy tightening.
The board decided to raise the rate on refinancing of secured loans, and the rate on temporary accommodations to 1.875 percent, and 3.75 percent, respectively.
“The Board judged that raising both the policy rates and the reserve requirement ratios would send a clear message that the Bank continues to adopt a monetary policy stance of tightening,” the bank said.
The central bank said it will intervene in the forex market when necessary to stabilize the New Taiwan dollar exchange rate.
Policymakers assessed that domestic inflation is expected to remain elevated due to mounting pressures of imported inflation fueled by rising international commodity prices.
Private consumption is expected to weaken due to the disruption in the recovery of the services sector caused by a resurgence in Covid-19 infections.
Further, a subdued global economic outlook due to the war in Ukraine, rising commodity prices and tightening monetary policy is set to damp domestic growth momentum.
Despite challenging global conditions, continued demand for emerging technology applications and digital transformation-related products would underpin Taiwan’s export growth in the second quarter, the bank said.
The central bank forecast 3.75 percent growth for the Taiwanese economy this year, which was lower than March’s 4.05 percent.
The Bank also revised the inflation and core inflation annual growth rate projections upwards to 2.83 percent and 2.42 percent, respectively.
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