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Taiwan set to hold rates steady amid persistent inflation worries: Reuters poll

Published 06/10/2024, 11:54 PM
Updated 06/10/2024, 11:55 PM
© Reuters. FILE PHOTO: Cars drive past Taiwan's central bank in Taipei, Taiwan, December 14, 2022. REUTERS/Ann Wang/File Photo

TAIPEI (Reuters) - Taiwan's central bank is expected to keep its policy interest rate unchanged this week and to stay the course until late next year as it deals with persistent concerns over inflation, according to economists in a Reuters poll.

The central bank, in a surprise move at its last board meeting in March, hiked the benchmark discount rate to 2% from 1.875%, wary of continued inflationary pressures and ahead of a rise in electricity prices.

At its next quarterly meeting on Thursday it is expected to keep the rate steady, according to 29 of the 31 economists surveyed.

Economists who answered questions on the outlook beyond this week predicted the bank would start cutting rates only from the third quarter of 2025, with the median estimate a drop to 1.875%.

Central bank Governor Yang Chin-long indicated last week there would be no surprises at this meeting.

Taiwan's consumer price index (CPI) rose by 2.24% in May, slightly higher than forecast and also above the 1.95% recorded in April, and it is expected to further increase in June due to rainy weather impacting food prices.

Kevin Wang, an economist at Taishin Securities Investment Advisory, said the central bank will likely keep the rate unchanged this time, but there could be another rise in the offing three months hence.

"Inflation will rise markedly after June, maybe exceeding 3%, so the pressure to hike will be relatively high" in September, he added.

The European Central Bank went ahead with its first interest rate cut since 2019 last Thursday, while the U.S. Federal Reserve is expected to hold interest rates steady at its meeting this week.

Taiwan's tech-centred, export-dependent economy is doing well, especially as the artificial intelligence boom drives orders for the likes of TSMC, the world's largest contract chipmaker. Taiwan's stock market is at record highs.

© Reuters. FILE PHOTO: Cars drive past Taiwan's central bank in Taipei, Taiwan, December 14, 2022. REUTERS/Ann Wang/File Photo

In March, the central bank raised its gross domestic product growth forecast for 2024 to 3.22% from a previous prediction of 3.12%. The economy grew by just 1.31% in 2023, its slowest pace in 14 years.

The central bank will also announce its revised economic growth and inflation forecasts on Thursday.

(Poll compiled by Devayani Sathyan and Milounee Purohit; Reporting by Ben Blanchard and Faith Hung; Additional reporting by Roger Tung; Editing by Jamie Freed)

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