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As inflation reaches a 10-year high, the Taiwanese central bank is expected to hike the policy interest rate

Image: Reuters Berita 24 English -  According to all analysts polled by Reuters, Taiwan's central bank is likely to hike its policy rate...

Image: Reuters

Berita 24 English -  According to all analysts polled by Reuters, Taiwan's central bank is likely to hike its policy rate once again this week in an effort to combat inflation, which has reached its highest level in almost a decade.

At its quarterly meeting on Thursday, the central bank is set to hike its benchmark discount rate by 12.5 basis points to 1.5 percent, according to the median view of 19 analysts surveyed. At its last meeting in March, the central bank unexpectedly increased the rate by 25 basis points to 1.375 percent.

Nine of the polled analysts anticipated more action, a second 25-basis-point increase to 1.625%.

The central bank has consistently stated that it will tighten monetary policy this year, similar to what other central banks are doing, and that inflation is a crucial criterion for interest rate changes.

In May, the consumer price index in Taiwan was 3.39 percent higher than it was one year prior. This inflation rate was the highest since August 2012 and exceeded the 2 percent target of the central bank for the tenth consecutive month.

However, inflation remains slower than in the United States and Europe.

The central bank stated last month that it expected economic growth to drop and inflation to rise this year, and that it would respond to economic uncertainties with appropriate and prompt action.

Anita Hsu, an analyst at MasterLink Securities Investment Advisory, predicted a 25-basis-point rate hike on Thursday.

"Before inflation begins to moderate, there is no justification for an increase less than that observed in March," she said, adding that the central bank may lighten up at its quarterly meeting in September, applying only a 12.5-basis-point increase.

A global shortage of semiconductors has bolstered Taiwan's export-dependent economy by filling the order books of chip manufacturers on the island. The export market has continued to function well.

While the economy grew 6.45 percent last year, the strongest rate since it expanded 10.25 percent in 2010, it is likely to develop more slowly this year due to the effects of COVID-19 lockdowns in China and the conflict in Ukraine.

The Taiwanese statistics office decreased its GDP growth projection for 2022 to 3.91 percent in March, down from 4.42 percent in February, while raising its export outlook for the year.

The central bank will alter its prediction for economic growth in 2022 on Thursday; in March, it anticipated growth of 4.05 percent.

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