Taipei, April 9 (CNA) – Taiwan’s central bank is expected to hike interest rates by 12.5 basis points quarterly for the remainder of 2022, and the tightening will continue into 2023, according to Singapore-based DBS Bank.
In a statement, DBS Bank chief economist Ma Tieying (馬鐵英) cited the central bank’s previous rate-hiking actions, saying the bank is expected to continue the “gradual” pace in its rate-hiking cycle this year and next.
At a quarterly policy meeting on March 17, the central bank surprised the market by raising interest rates by 0.25 percentage points, with the discount rate rising to 1.375 percent after the Federal Reserve ended its rate hike cycle with a 0.25 percent hike in interest rates had initiated points a day earlier.
The market had previously expected Taiwan’s central bank to keep interest rates unchanged for the eighth straight quarter in March, or raise rates by just 0.125 percentage points as inflation the country is facing is not as severe as in the US
The DBS economist said the central bank’s decision in March is aimed at reversing the one-off 0.25 percentage point rate cut made to deal with the economic impact of the COVID-19 pandemic.
“The pace of central bank rate hikes is likely to be gradual over the next 24 months,” Ma said, forecasting that the rate-hike cycle will exceed 2 percent, with the discount rate expected to reach 2.25 percent by the end of next year, while the It will expects the Fed to hike the federal funds rate by 200 basis points for the rest of this year, followed by another 100 basis points next year.
Only when the central bank’s steady rate hikes lift the bank rate to more than 2 percent next year will Taiwan see obvious adjustments in asset prices as well as an impact on the real economy, Ma said.
Although the Russian invasion of Ukraine and a surge in international crude oil prices have created risks for the global economy, Taiwan is unlikely to experience a recession, Ma said. The country is more likely to post more moderate qoq gross domestic product growth in April-June.
In addition, Ma said Taiwan should closely monitor the potential impact of lockdowns due to the increase in COVID-19 cases in China, which could impact the global supply chain. The rising number of domestic infections in Taiwan could also undermine private investment and consumption in the country.
Despite these variables, DBS raised its forecast for Taiwan’s GDP growth for 2022 to 3.8 percent from a previous estimate of 2.8 percent.
The economist said DBS also revised Taiwan’s CPI growth upwards for 2022 to 2.3 percent from 1.3 percent, adding that DBS does not expect rising crude oil prices to lead to stagflation, pointing to a situation where the inflation rate is high, economic growth is slowing down and unemployment also remains high.
In March, Taiwan’s consumer price index rose 3.27 percent from a year earlier, the sharpest rise since September 2012, when the index rose 3.42 percent.
The Directorate-General for Budget, Accounting and Statistics has said local CPI will rise more than 3 percent in April and growth will peak in the second quarter after the addition of more expensive imported commodities.