Taipei, Aug. 3 (CNA) Taiwan's central bank hinted it could tighten its monetary policy by raising interest rates in the second half of the year after leaving rates unchanged for an eighth consecutive quarter at its policymaking meeting in June.
In the minutes of the June 21 quarterly meeting released on Thursday, several directors on the central bank's board said Taiwan should prepare itself for possible rate hikes at a time of rising inflationary pressure.
One central bank director said that while the consumer price index (CPI) is expected to rise less than 1.5 percent in 2018, it rose more than 1.5 percent on average in the first five months of the year.
If the trend continues, higher inflationary pressures could cause the central bank to tighten monetary policy, the director said.
In late May, the Directorate General of Budget, Accounting and Statistics (DGBAS) forecast inflation to be 1.49 percent in 2018, after it was 1.6 percent in the first half of the year.
The central bank director said the United States has kicked off a rate hike cycle as the U.S. economy shows strong growth, and more interest hikes in Washington are possible in the second half.
As interest rates rise in the U.S., the value of the U.S. dollar will rise against the Taiwan dollar, dictating foreign fund flows in Taiwan, the director said, and the central bank will have to make adjustments in monetary policy to blunt the impact of a fund exodus.
Another director said the weakness of the Taiwan dollar against the U.S. dollar could put inflationary pressure on Taiwan as the country will have to spend more in Taiwan dollar terms to buy imported goods.
Some other directors said the central bank should start to communicate with the public about a possible rate hike in the near term, which will push the market's expectations closer to the central bank's policy.
Judging from the latest policymaking meeting minutes, analysts said it was possible the central bank will increase its key interest rates in the second half of the year.
With international crude oil prices on the rise, Taiwan could face growing imported inflation down the road, and the central bank may have no choice but to adjust its monetary policy, the analysts believed.
After the quarterly meeting in June, the benchmark discount rate of the central bank was left unchanged at 1.375 percent.
The rate on accommodations with collateral and the rate on accommodations without collateral were also unchanged at 1.750 percent and 3.625 percent, respectively.
