(Bloomberg) — Taiwan’s central bank kept borrowing costs at a record low Thursday, with speculation growing it’s getting closer to making its first rate hike in more than a decade as the U.S. Federal Reserve signals a hawkish shift.
The benchmark interest rate was left at 1.125%, as predicted by all 25 economists in a Bloomberg survey. The central bank also raised its forecasts for economic growth and inflation for this year and next.
Taiwan’s announcement comes after Fed Chair Jerome Powell laid out a road map for a series of interest-rate increases over the coming years, starting with three hikes in 2022. He also warned that inflation is now enemy No. 1 to keeping the U.S. economic expansion on track and returning the labor market to something approaching its pre-pandemic levels.
While Taiwan’s policy makers share Powell’s concerns over prices, a strong currency is likely to outweigh all other concerns for the time being. Central bank Governor Yang Chin-long has said repeatedly in recent months that if Taiwan were to raise rates before the major economies, it would trigger an influx of capital into Taiwan, exacerbating the upward pressure on the currency.
Taiwan’s nominal effective exchange rate has hit multiple record highs this year and the exchange rate to the U.S. dollar has consistently hovered close to a 24-year high.
But economists see the monetary authority bowing to the pressure to tighten eventually. Most foresee the bank raising borrowing costs twice in 2022, with one 12.5 basis-point hike to 1.25% in the third quarter of next year, according to the median estimate in a Bloomberg survey of 20 economists. The benchmark rate will then likely be raised again to 1.375% in the fourth quarter.
More stories like this are available on bloomberg.com
©2021 Bloomberg L.P.
