The central bank’s rate hike of 12.5 basis points on Thursday was less than expected, and the monetary policymaker is expected to continue raising rates in the second half of the year to curb inflation, UBS Securities Asia Ltd economist William Deng (鄧維慎) said on Friday.
Compared with a March forecast saying the central bank would raise rates this month and in September, UBS now expects two more 12.5 basis-point hikes in September and December, Deng said in a report.
The US Federal Reserve is expected to have increased its rate by 175 basis points by the end of this year — including a hike of 75 basis points next month and another 50 in September, Deng said.
Photo: Billy H.C. Kwok/Bloomberg
The central bank on Thursday announced a combination of an interest rate rise along with liquidity tightening as it increases the reserve requirement ratio — the proportion of deposits a bank is required to hold in reserves — by 25 basis points, effective July 1, the first increase since 2008.
The reserve hike is not expected to cause a significant decline in credit availability for corporate investment, as local banks generally have a low loan-to-deposit ratio, Deng said.
United Overseas Bank Ltd (UOB, 大華銀行) economist Chen Ho Woei (陳浩偉) on Friday said the move is expected to take about NT$120 billion (US$4.04 billion) out of the banking sector.
“Taken together, it does not imply a less hawkish move by the central bank,” Chen said in a research note.
UOB expects the central bank to continue rate hikes at its usual pace of 12.5 basis points until the first quarter of next year, and believes that the central bank might need to accelerate its tightening in the second half of next year by raising rates 25 basis points at either the September or December meeting, given the upside risks of global inflation, Chen said.
The central bank on Thursday forecast the nation’s GDP would expand by 3.75 percent this year, and the consumer price index (CPI) would grow 2.83 percent.
UBS expects Taiwan to register economic growth of 3.3 percent this year in light of strong investment momentum, with production reshoring and government’s policy support, while the CPI is predicted to hover above 2.5 percent next quarter and hit 2.9 percent for the whole of this year, Deng said.
UOB maintains a 3.6 percent GDP growth forecast for Taiwan this year, and expects the headline inflation rate could ease below 3 percent by the end of this year, averaging 2 percent next year, Chen said.
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