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Taiwan Monetary Policy March 2022

Taiwan: Central Bank hikes rates in March

At its monetary policy meeting on 17 March, the Board of Directors of Taiwan’s Central Bank (CBC) increased the policy rate from the record low of 1.125% to 1.375%. The decision was extremely hawkish given that the Bank normally raises rates in increments of 12.5 basis points, and took markets by surprise.

The key justification for the move was a desire to get ahead of the curve regarding inflation, and contain price pressures. While inflation is currently moderate, tracking between 2–3% since August last year, recent global commodity price increases due to the war in Ukraine pose upside risks to inflation going forward—particularly given that Taiwan is highly reliant on imported food and energy. Moreover, the U.S. Federal Reserve’s decision to hike rates by the same magnitude on the prior day was likely another factor behind the CBC’s move.

Looking ahead, further rate hikes are possible later this year as the Bank looks to snuff out any incipient upsurge in inflation—particularly if the war in Ukraine rumbles on, as this would likely continue to affect global commodity markets.

On the monetary and GDP outlooks, Iris Pang, economist at ING, said:

“The reasons given for the rate hike decision are not going away quickly, which means there could be another hike. One thing we worry about is that the Taiwan central bank would like to follow the Fed hike path closely. Based on inflation there is no need to do this, and more hikes would increase the cost of borrowing, which could slow down the economy, which is now in a stage of investing in new semiconductor factories. GDP growth might be at risk.”

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