TAIPEI (Reuters) – Taiwan has little room at the moment to cut its key policy rate due to current economic conditions, although the rate is at a 15-year high and a cut would be unlikely at the next policy meeting in June, the chief said of the island’s central bank. on Wednesday. In a surprise move, the central bank last week raised its benchmark discount rate to 2% from 1.875%, the level it has been at since March last year.
He cited inflationary pressures and rising electricity prices next month, which will rise 11% on average, but more for large industrial users. “Interest rates are now at a 15-year high, but the outlook is not good for them to fall,” Governor Yang Chin-long told Taiwanese lawmakers, adding that the effect of rising commodity prices ‘electricity on inflation would be relatively mild.
Asked whether it is correct to say the bank will not make further rate adjustments at its June meeting, Yang said: “You can probably say that.” The central bank said it expects a consumer price index (CPI) increase of 2.16% and a core CPI increase of 2.03% this year, given increases in electricity prices, but that inflation will gradually ease this year. Yang said a long-term average CPI of 2% is acceptable, but if the consumer price index were to rise above 3%, it would be “a different story” that may require further tightening measures. The central bank has repeatedly noted that Taiwan’s inflation has been much more subdued than that of other major economies and that, as a result, its tightening measures have also been much more moderate.