2023.03.2314:51:00UTC+00Taiwan Central Bank Raises Key Rate Further, Cuts Growth Forecast

Taiwan's central bank raised its key interest rate by a surprise move at its December meeting amid concerns about inflation as policymakers aim to achieve price stability and support sound economic and financial development.

The central bank board unanimously decided to raise the benchmark discount rate by 0.125 percentage points to 1.875 percent.

The discount rate was lifted for the fifth straight time. The previous change in the rate was also the same 0.125 percentage points in December.

The board decided to raise the rate on refinancing of secured loans and the rate on temporary accommodations by the same amount, to 2.25 percent and 4.125 percent, respectively.

Recent data showed that consumer price inflation eased to 2.43 percent in February from 3.05 percent in January. That was above the central bank's target corridor of 2.0 percent.

Looking ahead, domestic inflation is expected to cool down in 2023 amid projections of easing global supply-chain bottlenecks and lower raw material prices compared to last year.

Nonetheless, with the resumption of normal life post the pandemic likely to bolster prices of services for entertainment, the global outbreak of avian flu pushed up domestic food prices, and electricity rates were raised markedly.

Under these circumstances, the central bank upgraded its forecasts for this year's CPI and core CPI annual inflation rates to 2.09 percent. Both were lower than the previous year's 2.95 percent and 2.61 percent.

The Taiwanese economy is expected to grow modestly in the first half of this year, curbed by weak export and investment growth.

However, economic growth would rebound in the latter half on the back of domestic demand along with government measures, the bank said.

Therefore, the bank revised its GDP growth forecast downward to 2.21 percent in 2023, which is slower than the 2.45 percent in 2022.

Going forward, the bank said it will continuously monitor the developments in the housing and credit markets, review the implementation of selective credit control measures, and make adjustments as needed in order to promote financial stability and sound banking operations.