CPI rise of over 2% might prompt interest rate hike: central bank

Taipei, Taiwan's central bank will consider an interest rate hike if the local consumer price index (CPI) increases by more than 2 percent, according to the minutes of the bank's most recent policymaking meeting, which were released Thursday.

At the quarterly meeting on March 22, one of the bank's board directors and supervisors said CPI growth is a critical factor in deciding on an interest rate hike.

The bank left its key interest rates unchanged for the seventh consecutive quarter, with the discount rate at 1.375 percent, as the CPI rise remained mild at under 2 percent, the director said.

However, a CPI increase of more than 2 percent would prompt consideration of a rate hike, as the bank must pay attention to inflation in adjusting its monetary policy, the director said.

In the first quarter of the year, Taiwan's CPI rose 1.54 percent from a year earlier, with the core CPI, which excludes vegetables, fruits and energy items, increasing 1.53 percent .

The central bank has forecast Taiwan's 2017 CPI growth at 1.27 percent, and that of the core CPI at 1.26 percent, which it said in the meeting will keep inflation mild.

According to some market analysts, the minutes of the meeting indicate that the central bank is likely to leave its key interest rates unchanged for the eighth straight quarter when it holds its next policymaking meeting in June.

Other analysts have argued, however, that with the Taiwan dollar's depreciation since the beginning of April, inflationary pressure due to expensive imported items is likely to increase, which would prompt the central bank to adjust its monetary policy in the second half of the year.

In the period April 1 to May 3, the Taiwan dollar fell 2.14 percent against the U.S. dollar as foreign investors moved their funds out of the region in anticipation of a stronger greenback if the U.S. speeds up its interest rate hike cycle.

The central bank has forecast Taiwan's 2018 economic growth at 2.58 percent, slightly lower than the 2.86 percent growth in 2017, citing a relatively high comparison base last year.

According to several directors and supervisors in the recent central bank meeting, Taiwan's economic growth is uncertain at this time due to geopolitical tensions, in particular the trade friction between the United States and China, the world's two largest economies.

In addition, China's increasing investment in its semiconductor industry, part of its economic restructuring, may affect growth in Taiwan's integrated circuit industry, its major export sector, the directors said.

Source: Focus Taiwan News Channel