TAIPEI (Reuters) – Taiwan has little room at the moment to cut its benchmark rate due to current economic conditions despite the rate being at 15 year highs and a cut would be unlikely at its next policy meeting in June, the island’s central bank chief said on Wednesday. In a surprise move, the central bank last week lifted the benchmark discount rate to 2% from 1.875%, where it had stood since March of last year.
It cited inflationary pressures and next month’s rise in electricity prices, which will go up by an average of 11% but by more for large industrial users. “Interest rates now are at 15-year highs but prospects are not good for rates to go down,” Governor Yang Chin-long told Taiwan lawmakers, adding that the effect of the electricity price increases on inflation would be relatively mild.
Asked whether it would be correct to say that the bank would not make further adjustments to the rate at its meeting in June, Yang said: “You can probably say that”. The central bank has said that it expects the consumer price index (CPI) to rise 2.16% and core CPI to rise 2.03% this year given the electricity price hikes, but that inflation will gradually ease this year. Yang said an average CPI of 2% in the long term is acceptable, but if CPI jumps above 3%, that would be “a different story” that might require further tightening measures. The central bank has repeatedly noted that Taiwan’s inflation has been much milder than that of other major economies, and that accordingly its tightening measures have also been much milder.
(Reporting by Faith Hung; Editing by Ben Blanchard and Edwina Gibbs)
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