TAIPEI: Taiwan’s central bank will likely keep interest rates unchanged at its policy meeting today, as inflation has yet to pick up and rates in the United States remain at record lows.
The central bank has maintained an accommodative monetary policy against a backdrop of relatively tepid price growth, leaving its policy rate stable at 1.875% for the past 11 consecutive quarters.
Consumer price inflation (CPI) was 1.61% in May, below the central bank’s 2% comfort level and a softening from April’s figure.
Both export and export-order growth came in well below expectations in May, raising fears that Taiwan is losing competitiveness in its lynchpin sector, electronics.
But some sectors, such as housing prices and the stock market, are booming, and Taiwan’s overall economy is set to grow at 2.98% this year, its best showing since 2011.
Among other macroeconomic measures, industrial output continues a steady upward climb, with the index hitting a single-month record high in May.
The main TAIEX index has also been cresting new multi-year highs recently, and is one of the best-performing bourses in Asia, according to Tim Condon, an economist at ING in Singapore.
Condon believes that it is only a matter of time before this financial market growth shows up in the real economy.
“It takes a while for asset price inflation to trickle down to CPI,” Condon said. “Eventually, however, it will arrive.”
Condon believes the central bank will raise rates in about a year, tracking the US Federal Reserve. He said the rates should rise by about half of the Fed’s level of increase. — Reuters
This article first appeared in The Edge Financial Daily, on June 26, 2014.