Pause Continuing in Taiwanese Monetary Tightening

September 20, 2012

The Board of the Central Bank of the Republic of China (Taiwan) left its discount rate at 1.875%.  It has been at that level since the last of five sequential quarterly increases in June 2011.  Each of those hikes amounted to 12.5%.  The discount rate earlier was slashed from 3.625% prior to September 2008 to a low of 1.25% by February 2009, and it remained at 1.25% for sixteen months.  A statement on the central bank’s web site speaks of persistent global uncertainties, contracting Taiwanese exports, but growing inflationary pressure.  On the latter score, officials will watch to see if the Fed’s third round of quantitative easing generates a greater inflow of foreign capital in Taiwan, which could become a risk factor for inflation expectations.  CPI inflation ran close to 3% in July and August.  The central bank reviews its interest rate policy stance on a quarterly basis.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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