Taiwan's 2024 CPI growth likely to top 2% on power rate hike: Central bank head

Taipei, March 14 (CNA) Yang Chin-long (楊金龍), governor of the Central Bank of the Republic of China (Taiwan), said Thursday that the country's consumer price index (CPI) might grow by more than 2 percent this year, if electricity rates are increased as expected.

A hike in electricity rates will push up consumer prices, as businesses will raise their product prices to offset higher operational costs incurred as a result of bigger electricity bills, Yang said at a hearing of the Legislature's finance committee.

A growth of over 2 percent in the 2024 CPI will exceed the central bank's forecast of a 1.89 percent increase, which it issued last December.

The growth estimated by Yang will also be higher than the estimate made at the end of February by the Directorate General of Budget, Accounting and Statistics (DGBAS), which raised its forecast by 0.21 percentage points to 1.85 percent but did not take into account any power rate hikes.

The Ministry of Economic Affairs (MOEA) is scheduled to convene a power rate evaluation meeting in late March to discuss electricity rates, as the state-owned Taiwan Power Co. (Taipower) continues to report heavy losses. The MOEA has strongly hinted that power rates will be increased with effect from April to help alleviate Taipower's losses.

Taipower has reported NT$382.6 billion (US$12.18 billion) in accumulated losses, with NT$198.5 billion recorded in 2023 alone.

On Thursday, Yang said the central bank, through its tight monetary policy, has been seeking to quell market concerns of higher consumer prices.

However, if inflation remains above 2 percent in 2024, it will be difficult to allay those concerns, he said, noting that the inflation rate was 2.95 percent in 2022 and 2.49 percent in 2023.

Any electricity rate hike will depend on whether the Cabinet decides to subsidize Taipower's losses, Yang said.

His analyses seemed to signal that it might not be the best time for the central bank to start cutting interest rates, even though central banks in the United States and Europe have been discussing such a move.

In December, Taiwan's central bank left interest rates unchanged at 1.875 percent for the third consecutive quarter. Its next policymaking meeting is scheduled for March 21.

The central bank kicked off a rate hike cycle in 2022 to combat inflation, which pushed up the discount rate to 75 basis points, the highest in eight years.

When asked Thursday by opposition Kuomintang (KMT) lawmaker Lai Shyh-bao (賴士葆) whether the central bank would resume a rate hike cycle to push down prices if the CPI growth hits 2.5 percent, Yang did not give a direct answer.

The central bank will keep a close eye on the inflation rate and will discuss the matter carefully, Yang said.

He said, however, that local investors should be alert to possible risks, as they eagerly seek to participate in the fund raising campaigns launched by several securities firms to establish their new Exchange Traded Funds (ETFs), which aims to deliver high dividends.

Yang said the current enthusiasm for ETFs was a "herding effect" in the market, a term used to describe a trend of people rushing to follow the actions of others.

An ETF, which operates like a mutual fund, serves as a type of pooled investment security and typically tracks a particular index, sector, commodity, or other asset.

Meanwhile, the central bank will keep a close eye on the housing market, as loans to the property industry continue to grow, Yang said, adding that the bank will review its current select credit control policy.

Since December 2020, the central bank has imposed several rounds of select credit control in a bid to cool down the property market and rein in rising housing prices.

In a report submitted to the Legislature on Wednesday, the central bank said its buying of United States currency on the foreign exchange market last year exceeded its selling by US$2.77 billion, as it sought to alleviate the market's volatility.

The central bank intervened in the market as foreign institutional investors sold local shares and moved funds out of Taiwan in October, amid a strengthening of the American currency driven by anticipation of an interest rate hike by the U.S. Federal Reserve.

By November 2023, however, the Taiwan dollar began gaining strength against the U.S. dollar again, as foreign institutional investors moved large funds into the local market on an expected rate cut by the Fed, which prompted the Taiwan central bank to start buying the U.S. dollar.

According to the central bank, the Taiwan dollar fell only 0.09 percent against the U.S. dollar in 2023, and was relatively stable compared with other Asian currencies like the South Korean won, which dropped 1.82 percent against the U.S. dollar, the Chinese yuan that shed 1.98 percent, and the Japanese yen that plunged 7.03 percent.