ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailPositive ArrowIcon Print

Taiwan hikes key rate 12.5 basis points to 1.875%

Surprise move reflects inflation concerns despite global financial turmoil

Taiwan's central bank in Taipei. The rate hike came after the U.S. Federal Reserve raised interest rates by a quarter of a percentage point.   © Reuters

TAIPEI (Reuters) -- Taiwan's central bank raised its policy rate on Thursday in a surprise move reflecting continued concerns about inflation despite recent turmoil on global financial markets, and cut its outlook for the island's economic growth this year.

The central bank, in a unanimous decision, raised the benchmark discount rate by 12.5 basis points (bps) to 1.875%.

Governor Yang Chin-long told a news conference after the meeting that the rate hike was mainly because of inflation concerns and that their monetary policy goal was to maintain the stability of domestic prices.

Taiwan's rate hikes are mild and gradual, he added.

Economists in a Reuters poll had mostly expected the central bank to stand pat, though eight of the 24 economists surveyed expected the central bank would lift the rate to 1.875%.

Taiwan's trade-dependant economy is rapidly losing momentum as consumer demand swoons in major markets China, the United States and Europe, and as global inflation, rate rises and geopolitical pressures add more strains on business activity.

The island's February exports fell annually for a sixth straight month to their lowest in two years due to a deteriorating global economy, with the outlook remaining dim for at least the first half of the year.

Taiwan is a major producer of semiconductors used in everything from cars to smartphones, but with global consumer demand hit by high inflation and the war in Ukraine, GDP shrank 0.41% in the fourth quarter of last year.

The central bank said in a statement after the meeting that a rise in domestic food and electricity prices were pushing up inflation, but that it expected a gradual overall easing this year.

The decision came after the U.S. Federal Reserve on Wednesday raised interest rates by a quarter of a percentage point, but indicated it was on the verge of pausing further increases in borrowing costs after the recent collapse of two U.S. banks.

Taiwan's banks are in good financial health, Yang said.

The central bank again cut its 2023 estimate for economic growth to 2.21% from its previous forecast of 2.53% in December.

It also raised its consumer price index forecast for this year to 2.09% from a previous prediction of 1.88%.

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

Discover the all new Nikkei Asia app

  • Take your reading anywhere with offline reading functions
  • Never miss a story with breaking news alerts
  • Customize your reading experience

Nikkei Asian Review, now known as Nikkei Asia, will be the voice of the Asian Century.

Celebrate our next chapter
Free access for everyone - Sep. 30

Find out more