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Taiwan Monetary Policy September 2022

Taiwan: Central Bank hikes rates in September

At its monetary policy meeting on 22 September, the Board of Directors of Taiwans Central Bank (CBC) increased the policy rate from 1.50% to 1.625%, taking total tightening this year to 52.5 basis points.

The key justification for the move was the desire to contain price pressures. While inflation has eased since the plus-3% figures recorded in the middle of the year, it is still elevated by historical standards. Moreover, the hike could have had one eye on supporting the currency, which has depreciated by over 13% this year in the face of an aggressive Fed. Rebounding private consumption amid the easing impact of the pandemic at home provided the leeway to hike.

Looking ahead, another small hike is expected at the Banks next meeting in December. Rates are seen peaking next year at a level notably below the average for developed countries, given Taiwans relatively mild inflation; indeed, the CBC sees inflation dropping below 2% next year.

On the outlook, UOBs Ho Woei Chen said:

“The CBC is not expected to deviate from its measured pace of monetary policy tightening given a moderating trend in inflation (to below CBCs threshold of 2%) next year while growth risks have become more evident. We stick to our projection that the CBC will continue to lift interest rates by a modest 12.5 bps in both 4Q22 and 1Q23, to bring the discount rate to a terminal level of 1.875%.”

Analysts at Nomura are more dovish:

“The CBC clearly indicated that it will focus on domestic economic conditions, despite more aggressive global central bank action. As a result, we expect the CBC to deliver a final 12.5bp hike at the December meeting, versus our earlier forecast of a 25bp hike. We are lowering our terminal rate forecast to 1.75% versus 2% earlier.”

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