Taiwan’s central bank could still raise interest rates in March, a board member said, prompting a rise in the island’s bond yields on Monday.
(Bloomberg) — Taiwan’s central bank could still raise interest rates in March, a board member said, prompting a rise in the island’s bond yields on Monday.
Chang Chien-yi told Bloomberg News in a phone interview that he sees elevated consumer prices remaining a challenge this year, and said it was too optimistic to expect annual inflation to fall below 2%. Last year’s overall consumer price index reached 2.95%.
Those price pressures — along with the assumption that the economy will grow at an acceptable rate in 2023 despite expectations of a slowdown — leave room for the central bank to hike Taiwan’s benchmark interest rate in March, according to Chang, who spoke to a Bloomberg reporter on Friday.
The yield on Taiwan five-year government bonds rose seven basis points to 1.14% at Monday’s close after Chang’s remarks were made public. The 10-year yield increased six basis points to 1.253%.
The jump was likely because investors had mostly been expecting the central bank to refrain from raising its policy rate again, according to Stanford Chen, a trader at the Agricultural Bank of Taiwan.
The Monday comments were also more hawkish than prior statements Chang had given to local media about the possibility of a rate increase, said Greenland Chen, a trader at Taipei Fubon Bank.
Some economists had expected the central bank to stop tightening monetary policy after it raised its benchmark rate to 1.75% in December, given projections for cooling prices and as economic growth slows.
However, the prospect of continued price pressures has sparked concerns in recent weeks, with CPI rising in January to 3.04% from a year prior — much higher than economist estimates. Prior to that data release, deputy central bank governor Chen Nan-kuang had been voicing concerns about higher prices, saying early this month that the monetary authority should take more proactive steps to keep inflation under control and avoid a hard landing for the economy,
In his interview with Bloomberg News, Chang acknowledged concerns about continuing to raise rates given the economic outlook this year, adding that further hikes could impact spending. That’s a challenge given how much domestic demand is expected to drive growth in 2023.
He said, though, that it would be OK for gross domestic product to expand 2.5% this year. And Taiwan’s monetary policy doesn’t have to necessarily follow the pace of the US Federal Reserve’s more aggressive interest rate hikes.
–With assistance from Betty Hou and Argin Chang.
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