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Taiwan central bank surprises with 0.25% rate hike

Benchmark discount rate moves to 1.375% as island follows Fed increase

The central bank's policy rate moves off a historic low as inflation replaces COVID as the main foe.   © Reuters

TAIPEI (Reuters) -- Taiwan's central bank raised its benchmark interest rate in a surprise move on Thursday and by a much bigger margin than some expected on concerns about inflation, and also slightly revised up the trade-reliant island's 2022 growth outlook.

Taiwan's rate decision comes after the U.S. Federal Reserve on Wednesday raised interest rates for the first time since 2018 with a quarter-percentage-point increase in the target federal funds rate.

Taiwan's central bank raised the benchmark discount rate TWINTR=ECI by 25 basis points (bps) to 1.375% from 1.125%, where it had stood since March of 2020, when it cut the rate to a historic low to weather the COVID-19 pandemic.

Sixteen of 20 economists in a Reuters poll had expected the central bank to keep the rate on hold at its quarterly monetary policy meeting. The other four economists had forecast a 12.5 bps increase.

It also nudged up its 2022 estimate for gross domestic product (GDP) growth to 4.05% from 4.03% seen in December, saying export momentum remained strong.

On inflation, the central bank said it saw the consumer price index rising 2.37% in 2022, revising up the outlook from 1.59% predicted in December.

In a statement, it said that the rate hike would be "conducive to curbing anticipation of domestic inflation and would help maintain price stability" as well as stable economic and financial development.

The bank also cited the Fed's tightening move, as well as "high pressure from imported inflation" for its rate decision, referring to the leap in commodities prices from the war in Ukraine.

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