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Central Bank Raises Key Rate By 12.5bp In Hawkish Surprise

TAIWAN

Taiwan's central bank wrong-footed the market raising its key interest rate by 12.5bp to 2.000% from 1.875%, contrary to unanimous expectations of a stand-pat decision.

  • The Central Bank of the Republic of China (CBC) revised their 2024 CPI forecast to +2.16% Y/Y from +1.89% (now factoring in a power price hike), with GDP growth forecast revised to +3.22% Y/Y from +3.12%.
  • The CBC said that the rate hike was motivated by the intention to curb inflation expectations, adding that it will monitor the impact of an increase in power prices on overall inflation.
  • The central bank said that easing imported inflation helps stabilise prices but core CPI remains elevated, which is unfavourable for the objective of containing price pressures. They expect core CPI to average at +2.03% Y/Y this year.
  • Today's decision brings the policy rate to the highest level since 2008, with concern about the impact of plans to raise electricity prices to trim the losses of government-owned utility Taiwan Power Co. evident in the CBC's deliberations.
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