© Reuters. FILE PHOTO: A staff member stands beside the Taiwanese Central Bank logo in Taipei, Taiwan February 26, 2018. REUTERS/Tyrone Siu/File Photo
By Yimou Lee and Liang-sa Loh
TAIPEI (Reuters) – Taiwan’s central bank raised its policy rate on Thursday for the third time this year, reflecting continued concerns about inflation, even as it cut the economic growth forecast for 2022 on slowing export momentum.
The central bank raised the benchmark discount rate by 12.5 basis points (bps) to 1.625%, as expected.
Economists in a Reuters poll had expected the central bank to raise the rate at its quarterly monetary policy meeting. The median expectation was for a 12.5 bps rise, but a minority forecast an increase of 25 bps and one saw a 50 bps hike.
The decision came after the US Federal Reserve delivered its third straight 75-basis-point rate hike on Wednesday and signaled more rises at upcoming meetings, underscoring its resolve not to let up in its battle to contain inflation.
“Our economy shows a downward trend, but there are still many uncertainties ahead,” Governor Yang Chin-long told reporters, citing factors including the war in Ukraine and geopolitical tensions in the region.
Taiwan’s central bank, which has repeatedly said it will tighten this year as its counterparts elsewhere are doing, said it will continue to adjust monetary policy in a timely way to help stabilize prices.
As an additional tool to help curb inflation, the bank also raised by 25 bps the various rates it has for banks’ reserve requirement ratios. It was the second such move this year after a rise of the same ratio in June.
It said that, along with the rate rise, will help curb inflation which it predicted would gradually stabilize in the second half of this year.
The central bank said it expected the consumer price index (CPI) would rise 2.95% in 2022, slightly revising up the outlook from 2.83% predicted in June.
But inflation, never as bad as in the United States or Europe, is easing.
Taiwan’s consumer price index was 2.66% higher in August than a year earlier, the lowest reading in half a year.
The trade-dependent economy is also beginning to lose momentum as consumer demand swoons in major markets China, the United States and Europe. Taiwan’s exports last month rose just 2% on-year and could get worse as the year progresses.
The central bank again cut its 2022 estimate for gross domestic product (GDP) growth to 3.51% from 3.75% seen in June. For 2023, it predicted GDP growing 2.9%. The economy grew 3.05% in the second quarter from a year earlier.
The bank said Taiwan’s exports are unlikely to expand rapidly next year due to the global economic downturn.