Taiwan central bank News : Wary of inflation Taiwan central bank raises key rate in surprise move

Taiwan central bank News

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By Liang-sa Loh and Faith Hung

Taiwan central bank News : TAIPEI (Reuters) -Taiwan’s central bank surprised markets by raising its policy rate on Thursday, wary of continued inflationary pressures and ahead of an expected rise in electricity prices next month.

The central bank hiked the benchmark discount rate to 2% from 1.875%, where it has stood since last March, citing concern about the effect of April’s power price hike and as inflation persists.

In a Reuters poll, 25 out of 26 economists had predicted the central bank would keep the rate unchanged. The new rate remains at a much lower level relative to major economies.

Taiwan’s central bank increased its forecast for the consumer price index (CPI) this year to 2.16% from a previous prediction of 1.89%.

The island’s CPI rose 3.08% in February, a 19-month high, as food prices climbed during the Lunar New Year holiday.

Taiwan’s government will announce on Friday by how much electricity prices will go up.

Taiwan’s unexpected rate rise follows the U.S. Federal Reserve’s decision on Wednesday to leave rates on hold though it indicated it would stick with plans to cut borrowing costs this year.

Taiwan’s central bank also raised its 2024 estimate for economic growth to 3.22% from a forecast of 3.12% in December, as global demand for made-in-Taiwan tech products as well as domestic spending rebound.

The economy grew at its slowest pace in 14 years in 2023.

Here’s a breakdown of the news about Taiwan’s central bank raising interest rates:

  • Reason for the increase: Taiwan’s central bank is concerned about inflation, which is rising faster than expected. The consumer price index (CPI), which measures inflation, reached a 19-month high of 3.08% in February, driven by rising food prices during the Lunar New Year holiday. The central bank also increased its forecast for inflation this year to 2.16%, up from their previous prediction of 1.89%.
  • Surprise move: The decision to raise interest rates was unexpected by many analysts. The benchmark discount rate was increased from 1.875% to 2%. This is the first rate hike since last March.
  • Goal of the rate hike: Raising interest rates is a tool used by central banks to combat inflation. Higher borrowing costs can discourage spending and investment, which can help to slow down price increases.

Overall, Taiwan’s central bank is taking steps to control inflation before it gets out of hand. This is a significant move, as it indicates a shift in their monetary policy.

ere’s the breakdown of the news about Taiwan’s central bank raising interest rates:

  • The Problem: Taiwan, like many countries, is worried about inflation. Inflation is the rise in the cost of goods and services over time. In Taiwan’s case, their inflation rate has been climbing, reaching a 19-month high of 3.08% in February. This is higher than what the central bank had predicted earlier.
  • The Cause: There are several reasons why inflation might be rising in Taiwan. One factor could be the recent Lunar New Year holiday, which often leads to temporary price increases for food and other goods.
  • The Response: To combat inflation, Taiwan’s central bank decided to raise its key interest rate. This was a surprise move, as many economists weren’t expecting it. An interest rate is basically the cost of borrowing money. By raising the rate, the central bank makes it more expensive to borrow money, which can slow down economic activity and hopefully bring down inflation.
  • The Impact: Raising interest rates can have a mixed impact. It might help control inflation, but it can also slow down economic growth. It will be interesting to see how this move affects Taiwan’s economy in the coming months.

Overall, this is a story about how a central bank is trying to manage inflation through interest rates. It’s a common tool used by central banks around the world.

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