Taiwan lifts discount rate by 12.5 bps to 1¾% on steady expansion data

By Susanna Moon

Chicago, March 31 - Central Bank of the Republic of China (Taiwan) said it decided to raise the discount rate by 12.5 basis points to 1¾% at its policy meeting Thursday.

The board said its decision was based on several factors including the country's steady expansion through exports, industrial production and consumer spending.

The Consumer Price Index rose an average of 1.21% for the first two months this year, reflecting price increases in domestic retail goods due to the rising costs of raw material imports. The board noted that according to the DGBAS, the country's annual CPI inflation rate will likely to climb to 2% this year.

The board said the lending environment also has improved, with overnight call-loan rates up and net excess reserves down to an appropriate level in February as the bank absorbed more excess liquidity with three policy rate hikes since June 2010.

Board members also noted the better-than-expected economic growth earlier this year before the instability in North Africa and the Middle East, which pressured commodity prices and caused inflation risks. The Japanese earthquake set off supply chain interruptions for raw material supplies and key parts. These factors could pose downside risks to the global recovery, the bank noted.

The bank said that the rate hike may "help contain inflation expectations and safeguard price stability."

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