Taiwan’s Central Bank Keeps Rate Unchanged for Fifth Quarter

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Taiwan’s central bank kept borrowing costs unchanged for a fifth straight quarter as it grapples with new risks from inflation and a surging currency.

Policy makers left the benchmark lending rate at 1.125%, according to a statement Thursday, in line with all 26 estimates in a Bloomberg survey of economists.

The central bank raised its forecast for economic growth for this year to 5.08% from 4.53% previously as exports and private investment benefit from a global recovery in the second half of the year. Officials also increased their projection for inflation to 1.6% from 1.07%.

“The CBC will maintain a wait-and-see approach and will not rush for an interest rate hike. The monetary policy will still be accommodative in the near term,” Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group Ltd., said in a message. “Basically, the upward revision of the GDP forecast does not immediately imply a hurry for a rate hike.”

The economy is facing risks from a surprise Covid-19 outbreak in May, rising inflationary pressures and a currency hovering at a 24-year high.

The worst drought in Taiwan’s history and surging global commodity prices are set to push inflation higher this year. A severe lack of rainfall since last summer has damaged farming output and contributed to the hottest consumer price inflation in more than eight years in May.

“Inflation will reach its peak in the second quarter and then decline from then on, so the outlook for inflation is mild,” central bank governor Yang Chin-long said at a briefing Thursday.

The central bank also needs to decide whether to curb the continued strength in the Taiwan dollar, which has become the best-performing Asian currency against the U.S. dollar this year, in order to keep exports competitive in its trade-reliant economy.

Still, economists don’t see a change to borrowing costs on the cards. Policy makers are likely to raise rates in the third quarter of next year at the earliest, according to a Bloomberg survey.

©2021 Bloomberg L.P.

With assistance from Bloomberg