Taiwan Gets a Second Rate Hike

September 30, 2010

The Taiwanese central bank benchmark rate was lifted by 12.5 basis points to 1.5%.  This as-expected move follows one of similar size undertaken on June 24.  The rate had been at a 55-year low of 1.25% following seven reductions totaling 362.5 basis points administered from June 2008 through February 2009. 

Taiwan has no consumer price inflation, thanks in part to an appreciating New Taiwan Dollar, which advanced another 2.5% this month.  Accordingly, a miniority of analysts were not expecting today’s rate advance, and most were surprised when tightening began in June.  However, an asset price bubble is brewing in the housing market.  Real GDP is very buoyant, advancing 7.2% annualized last quarter and 12.5% between 2Q09 and 2Q10.  Growth had been even faster in the first quarter of this year and being propelled by exports.  The jobless rate has fallen to just 5.1%, and August industrial production was 23.4% higher than a year earlier.  Taiwan’s monetary policy needs to be normalized, and officials shouldn’t wait until CPI inflation accelerates.  The size of incremental increases will probably widen next time.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.



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