COST OF LIVING/Central bank announces surprise interest rate rise of 12.5 basis points

Taipei, March 21 (CNA) The Central Bank of the Republic of China (Taiwan) said on Thursday that it has decided to raise its key interest rates by 12.5 basis points after concluding a quarterly policymaking meeting that day.

The decision surprised observers, with the local central bank saying it will continue its efforts to combat inflation, in particular after the U.S. Federal Reserve decided overnight to keep interest rates unchanged after a two-day policymaking meeting.

In addition to the rate hike, the central bank also forecast that the local consumer price index will rise 2.16 percent in 2024, a sharp upgrade from the 1.89 percent estimate it made in December.

The decision to hike interest rates came after three consecutive quarters in which the central bank left rates unchanged. Before Thursday, the central bank had raised interest rates by 75 basis points since its quarterly policymaking meeting in March 2023

Market analysts have speculated that a electricity tariff hike in April could add upward pressure to local inflation.

Yang Chin-long (楊金龍), governor of the local central bank, said at a legislative hearing last week that it was likely the local consumer price index (CPI) would top 2 percent in 2024, an alert set by the bank.

The Ministry of Economic Affairs (MOEA) is scheduled to convene a power rate evaluation meeting later this week to discuss electricity rates, as state-owned Taiwan Power Co. (Taipower) continues to report heavy losses. The MOEA is expected to announce power rates increases with effect from April to help alleviate Taipower's losses.

Taipower has reported NT$382.6 billion (US$12.03 billion) in accumulated losses, with NT$198.5 billion recorded in 2023 alone.

In the first two months of this year, the CPI rose 2.43 percent from a year earlier after a spike of 3.08 percent in February, when the Lunar New Year holiday sparked a buying spree and added upward pressure to inflation.