Taiwan central bank board eyes inflation near two percent for rate hike

Taipei, Dec. 12 (CNA) — Taiwan's central bank will hold its third-quarter board of directors and supervisors meeting on the 17th, with the focus centering on mounting inflationary pressures and tightening capital market conditions. Over the past two months, Taiwan's Consumer Price Index (CPI) has continued to rise, and core inflation has also broken out of its multi-month low, significantly increasing the central bank's pressure to raise interest rates compared to the June meeting. As the core body responsible for determining policy interest rates, the board will review whether to continue raising rates or adjust monetary policy against this backdrop.

The latest statistics show that the year-on-year CPI growth rate for December stood at 2.1%, a slight increase from the previous month, while core inflation reached 2.6%. The primary factors driving up inflation include persistently high international oil prices, global supply chain bottlenecks, and rising domestic food prices driven by seasonal demand. Although Taiwan's inflation target is 2%, current figures are approaching the upper limit. If not effectively contained, this could have a negative impact on consumer confidence and corporate investment.

On the monetary policy front, the central bank has raised interest rates for three consecutive times since late last year, bringing the policy rate up to 3.25%. Compared to major global central banks, Taiwan's pace of rate hikes has been relatively gradual, mainly because domestic economic growth has remained relatively robust. However, with the tightening of the global financial environment, a strengthening US dollar, and a decrease in foreign direct investment inflows, the market generally expects that the central bank may further raise interest rates or at least maintain current rates at this meeting to prevent inflation from continuing to climb.

Market reactions have also shown multiple facets. Short-term government bond yields have climbed to around 5% amid rate-hike expectations, while the stock market has retreated slightly due to the risks of rising interest rates. The real estate market has shown signs of polarization between supply and demand; demand has weakened in some regions due to rising interest rates, while other hotspots remain active as investors anticipate future appreciation.