Central bank cuts Taiwan GDP growth forecast to 3.51% for 2022

09/22/2022 09:25 PM
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Taipei, Sept. 22 (CNA) The central bank lowered its forecast for growth in Taiwan's gross domestic product (GDP) in 2022 to 3.51 percent after wrapping up a quarterly policymaking meeting Thursday.

Citing a slowing global economy and falling demand worldwide, the central bank said the export-oriented local economy has been feeling the pinch amid inventory adjustments, and the private sector has turned cautious about investments.

As a result, the central bank cut its forecast for Taiwan's GDP growth in 2022 by 0.24 percentage points from an earlier estimate made in June.

As for 2023, the central bank said Taiwan's economy is expected to grow 2.90 percent as downside risks in the global economy continue to cap the country's export and investment momentum, despite a recovery in private consumption.

The latest GDP forecast indicates that the central bank is more cautious than the Directorate General of Budget, Accounting and Statistics (DGBAS), which in August forecast GDP growth of 3.76 percent in 2022 and 3.05 percent in 2023.

Interest rate hike

At the policymaking meeting, the central bank also decided to raise its key interest rates by 12.5 basis points with the discount rate to rise to 1.625 percent, while the rate on accommodations with collateral will grow to 2.0 percent, and the rate on accommodations without collateral will rise to 3.875 percent, according to the bank.

The rate hike is scheduled to go into effect Friday.

The central bank continues to take a more moderate approach than the U.S. Federal Reserve, which raised interest rates by 75 basis points overnight. Since March, when the two central banks kicked off a rate hike cycle, the local central bank has raised rates by 50 basis points, while the Fed's rate hikes amount to 300 basis points.

The Fed also hinted an additional 75 basis point hike in November.

Speaking with reporters after the policymaking meeting, central bank governor Yang Chin-long (楊金龍) said the decision on the relatively moderate rate hike in Taiwan was made after taking into account Taiwan's mild inflation compared with the U.S.

Moderate consumer price increases

In August, Taiwan's consumer price index (CPI) rose 2.66 percent, the lowest growth since 2.33 percent in February, while the CPI in the U.S. fell to 8.3 percent in August from 8.5 percent in July, but still remained close to its highest for 40 years and well above the 2 percent alert level.

Yang said it is possible local CPI growth will moderate to below the 2 percent in 2023.

According to the central bank, Taiwan's CPI is expected to grow 2.95 percent, an upward revision from its previous estimate of 2.83 percent, with core CPI, which excludes fruit, vegetables and energy, expected to hit 2.52 percent.

Yang said the dovish attitude adopted by the central bank is also based on an expectation that Taiwan's economic growth will fall below 3 percent in 2023, referring to its latest forecast of 2.90 percent.

Yang admitted that the 12.5 basis point hike was not a unanimous decision by the central bank's directors and supervisors, noting that some had pushed for a 25-basis point increase.

However, Yang emphasized that Taiwan's economic structure and financial system are quite different from those in the U.S., making it inappropriate for the local central bank to follow the Fed's more hawkish lead.

The central bank did not introduce any new credit control to rein in speculation in the property market at Thursday's meeting, but Yang said the bank did raise the required deposit reserve ratio, which is the fraction of deposits regulators require banks to hold in reserve and not loan, by 25 basis points to further drain funds from the market.

It was the second consecutive quarter the central bank has raised the required deposit reserve ratio.

After three rate hikes since March, home buyers have to pay more than NT$2,000 (US$63.29) extra in interest per month on 20-year or 30-year NT$10 million mortgages as the mortgage rate offered by the five major banks is expected to rise to 1.828 percent, the highest since March 2016, according to an estimate by Great Home Realty.

Despite the rate hike by the central bank, the Ministry of the Interior said subsidies provided by the ministry's housing funds will cover the higher interest payments until the end of this year.

(By Pan Tzu-yu, Lai Yen-hsi, Chen Chun-hua and Frances Huang)


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