(Bloomberg) — Taiwan’s central bank held interest rates steady at its final meeting of 2023, leaving borrowing costs at their highest levels in eight years as the island gears up for a critical January election.
Policymakers maintained Taiwan’s benchmark interest rate at 1.875% for the third consecutive meeting, in line with the estimate of 20 of 21 economists surveyed by Bloomberg. They haven’t raised rates since March.
The monetary authority lowered its forecast for economic growth for this year to 1.4% from a previous estimate of 1.46% but gave a more bullish outlook for next year, raising its full-year forecast to 3.12%.
Keeping borrowing costs unchanged will help the stable development of the economy and finance, the central bank said in its statement. It warned, however, that it is monitoring the downside risks to Taiwan from China’s slowing economy.
Stubbornly high consumer prices look set to remain an additional concern for policymakers. They raised their full-year inflation forecasts for this year and next to 2.46% and 1.89% respectively.
The central bank’s response to inflation is being closely watched in the run-up to the presidential vote, in which the ruling Democratic Progressive Party is trying to win an historic third straight term in power.
The government faces challenges from high prices, with the consumer price index hovering around 3% for the last three months as the price of food staples such as meat have surged. The gap between inflation for the island’s poorest families and overall price increases last month was the widest since March, adding to strains.
If inflation pressures persist, that may hurt the DPP’s hopes of securing another victory. While its presidential candidate — Vice President Lai Ching-te — has led polls for much of this year, his lead is narrowing as the rival Kuomintang’s Hou Yu-ih gains traction. The KMT is more friendly toward Beijing than the DPP is, and the outcome of the election may have big implications for geopolitical relations between China and the West.
Traders are ramping up bets for global interest rate cuts after the Federal Reserve signaled it’s pivoting towards lowering its benchmark rate, which it held in a target range of 5.25% to 5.5% this week.
Taiwan’s central bank will not necessarily follow the Fed in lowering borrowing costs, governor Yang Chin-long said in a briefing Thursday.
Taiwan rates remain substantially below those of the US, along with peer economies like South Korea, which on Nov. 30 held its key rate unchanged at 3.5%.
–With assistance from Betty Hou.
(Updated with more details in the third, fourth and fifth paragraphs.)
