Taiwan central bank says raising rates could help curb inflation expectations

TAIPEI (Reuters) – Taiwan’s deputy central bank governor said on Monday that raising interest rates may help curb inflation expectations, although also noting an aversion to raising rates during an export downturn.

The current wave of inflation is not a short-term phenomenon and has fanned expectations for continued high inflation, Yen Tzung-ta told lawmakers during a parliamentary session.

“Over the last 40 years, the Central Bank has rarely raised interest rates during export downturns, but our monetary policy is forward-looking,” Yen said, taking questions from a lawmaker.

“Our policy considerations include inflation, financial stability and economic growth. Although the economy has been affected, this is reflected in the first quarter,” Yen said.

Taiwan’s economy is largely driven by its status as a major producer of semiconductors used in everything from cars to smartphones.

But with global consumer demand curtailed by high inflation and the economic effects of the war in Ukraine, the island’s economy shrank 0.41% in the fourth quarter of last year.

Taiwan’s exports in February fell on an annual basis for a sixth consecutive month to their lowest in two years because of the slowing global economy, with the outlook remaining dim for at least the remainder of the first half of the year.

While the inflation growth rate is slowing, absolute levels remain high, Yen said.

Although he suggested a rate change is under consideration, economists expect the central bank to keep its policy interest rate unchanged on Thursday at its quarterly rate-setting meeting as the island’s economy slows and global banking woes roil financial markets.

(Reporting by Faith Hung; Editing by Tom Hogue)