'MODERATE': The hike was in response to the US Fed increasing its rates, and has the aim of taming inflation back down to 2%, the central bank said

By Crystal Hsu / Staff reporter

The central bank yesterday raised its policy rate by 0.125 percentage points for the fifth time since March last year to tame inflation and curb price hike expectations, as consumer prices continue to gain traction.

The move came after the US Federal Reserve raised policy rates overnight, and central banks in Hong Kong, Norway, the Philippines and Switzerland yesterday followed suit.

“The rate hike fell in line with our appropriate and moderate approach to drive inflation back toward the 2 percent target,” central bank Governor Yang Chin-long (杨金龙) told a news conference after the bank's quarterly board meeting.

The latest monetary decision would increase the discount rate to 1.875 percent, effective today.

The central bank would consider three factors when weighing future policy moves: the cumulative effect of past rate hikes, the spillover of monetary tightening by major central banks and the repercussions of bank collapses in the US and Europe, Yang said.

The adjustments were made according to his guidance alongside the Fed, he said.

The US central bank said in a statement that “some additional policy firming” might be needed, replacing a promise of “ongoing increases” to attain restrictive monetary policy with a return of inflation to 2 percent.

Yang said he shared the “dovish leaning,” but much depends on incoming data.

Taiwan's central bank expects consumer prices to grow 2.09 percent this year while GDP growth would slow to 2.21 percent.

That the economy could recover in the third quarter of this year gave it confidence in the rate hike, it said.

The decision had the support of all board members and nobody suggested more aggressive action, Yang said.

Although international energy prices have subsided and eased pressure on imported inflation, domestic service sectors charge noticeably higher prices after emerging from the COVID-19 pandemic, Yang said.

Food, travel, entertainment and dining became more expensive, driving up inflation, he said, adding that price upturns by service sectors tend to be sticky and irreversible.

The electricity price increase next month could further spur inflation, Yang said, calling the situation much more formidable than egg shortages.

Egg prices, even if rising rapidly, would not tilt the inflation gauge, but this could change when retailers pass extra energy costs to consumers, he said.

The government can avoid such a scenario by sparing most households and small businesses tariff hikes, making corporate users bear the brunt, Yang said.

The central bank would pay close attention to any spillover effects induced by international bank failures, he said, adding that Taiwan's financial system is stable.

News source: TAIPEI TIMES