20220617 Business Times / Lu Qinglang / Taipei report
The central bank held a meeting of the board of supervisors for the second quarter on the 16th, and decided to raise interest rates by half a yard (0.125 percentage points), and at the same time raised the deposit reserve ratio by 1 yard (0.25 percentage points) for the first time in 14 years, further tightening, and making every effort to combat imported inflation.
After the interest rate hike, the rediscount rate, the guaranteed loan financing rate and the short-term financing interest rate will be 1.5%, 1.875% and 3.75% respectively, which will be implemented from June 17, and the reserve ratio for current and fixed deposits of NTD will be increased by 0.25 percentage points respectively, which will be implemented from July 1.
Taiwan’s annual CPI growth rate in May hit a new high in nearly 10 years, and exceeded 3% for three consecutive months, and was higher than the warning line of 2% for 10 consecutive months, especially the core CPI increased by 2.6% year-on-year, hitting a new high in more than 13 years. Yang Jinlong, governor of the central bank, said that the central bank has adopted monetary policy to curb inflation, and this time in addition to raising interest rates by half a yard, raising the deposit reserve ratio by 1 yard, and adjusting the open market, through the cooperation of three aspects, can play a better effect.
Yang Jinlong said that the central bank raised interest rates by 1 yard in March, and this time it rose by another half yard, mainly considering the rise in international bulk materials since the beginning of the year, the rise in supply-side prices, and the continuation of the Russian-Ukrainian war to aggravate the pressure of imported inflation, “but compared with other countries, we (Taiwan) are relatively mild, because the government has taken a number of countermeasures against the supply side, and the central bank has suppressed inflation psychology on the demand side.
Since April, affected by the heating up of the domestic epidemic, resulting in a slowdown in consumption, the government bailout period has been extended to the end of June next year, Yang Jinlong pointed out that the central bank’s SME loans will end at the end of June, when the interest rate will be raised, there will be a greater impact on small and medium-sized enterprises, therefore, this time all the directors unanimously agreed to only raise the policy interest rate by half a yard and the NTD deposit reserve ratio by 1 yard, and the Minister of Economic Affairs Wang Meihua (ex officio governor of the central bank) also expressed support.
Yang Jinlong explained that the increase in the deposit rate this time is estimated to recover about 120 billion yuan of market funds, “but unlike the open market, this is locked”, after the increase in the deposit interest rate has no impact, but because bank funds are locked, the willingness to lend will be relatively reduced, and including corporate bonds, commercial promissory notes, new loan interest rates, etc. are more cautious, that is, the lending interest rate will be reflected (rising), as for how much the interest rate will increase, further observation is needed.
Yang Jinlong believes that the simultaneous increase in the deposit rate can clearly declare the central bank’s continued tightening monetary policy stance, which will help strengthen the policy effect, curb inflation expectations, and achieve the policy goal of maintaining price stability and assisting the overall economic and financial development.
He also reiterated that the direction of tightening will remain unchanged until the end of the year, and if the situation at home and abroad changes significantly before the end of September, an interim standing council will be convened if necessary to propose countermeasures in real time. According to the market, the central bank may raise interest rates by at least half a yard in the third quarter.