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HomeEconomyTaiwan's central bank raises benchmark interest rate again, cuts growth outlook

Taiwan's central bank raises benchmark interest rate again, cuts growth outlook

By Yimou Lee and Liang-sa Loh

TAIPEI (Reuters) – Taiwan’s central bank on Thursday cut its growth forecast for this year, saying tensions with China are a source of stress for its economy. One aspect of certainty, while raising policy rates for the third time this year to help control inflation.

The central bank raised the benchmark discount rate by

.5 basis points (bps) to 1.625% at its quarterly monetary policy meeting , as expected by most economists in a Reuters poll. [nL4N 05J75]

This decision was made in the Federal Reserve’s first Wednesday’s consecutive 75 basis point rate hikes came after three releases and hinted at further hikes at the upcoming meeting, underscoring its unrelenting stance in the fight against inflation determination.

“Our economy is showing a downward trend, but there are still many uncertainties ahead,” Governor Yang Jinlong told reporters, citing factors such as the war in Ukraine and geopolitics. tensions in the region.

In a statement accompanying the rate decision, the bank said tensions in the Taiwan Strait have risen, with China in the Taiwan Strait following U.S. House Speaker Nancy Pelosi’s last visit to Taipei Conducting military exercises and deteriorating U.S.-China relations is one of the risks facing Taiwan.

The trade-reliant economy is starting to lose steam as consumer demand slumps in key markets in China, the U.S. and Europe. Taiwan’s exports rose just 2% year-on-year last month, and may over time will get worse.

The Central Bank lowered again 2022 the gross domestic product (GDP) from 3.75 in June % increased to 3.%. For 2023, it forecasts GDP growth of 2.9%. The economy grew by 3.% year-on-year in the second quarter.

Banks say Taiwan’s exports are unlikely to expand rapidly next year due to a sluggish global economy.

As an additional tool to help curb inflation, the bank has also adopted 25 different interest rates based on bank reserve requirement ratios . This is the second such move this year, following the same rate hike in June.

It said that as interest rates rise, it will help contain inflation, which is expected to gradually stabilize in the second year. first half of this year.

The central bank said it expects the consumer price index (CPI) to rise by 2. 95% in

, up from 2 in June .95% revised up the outlook slightly.

But inflation, which has never been as bad as in the US or Europe, is easing.

Taiwan’s consumer price index in August was 2.75%, higher than the same period last year, the lowest reading

Yang said that for Taiwan, raising interest rates to curb inflation is not “the best option” and measures such as import tariffs on some goods are more effective.

When asked about the direction of future monetary policy, Yang said the central bank needs to keep in mind its inflation forecast for next year.

“We will reassess in December. Anything is possible.”

The bank also reiterated that if the foreign exchange market “Excessive volatility” and it will intervene. The Taiwan dollar has depreciated by more than % so far this year, but the Japanese and South Korean currencies have fared worse.

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