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Recovery, inflation to lead to rate hikes: Standard Chartered

TAIPEI--Standard Chartered Bank said Friday that an economic recovery and rising inflationary pressure could prompt the local central bank to raise its key interest rates.

Tony Phoo, chief economist at Standard Chartered Bank in Taipei, said that judging from economic data released in April and May, Taiwan's gross domestic product (GDP) is likely to rise 3.5-4 percent in the second quarter, and inflation could top 2 percent in the third quarter.

In the first quarter, Taiwan's GDP rose 3.14 percent according to the preliminary reading on a recovery in exports and private consumption. The local consumer price index for May gained 1.61 percent due to a jump in food prices.

The economist said higher food prices could continue to serve as a driver for inflation.

Improving economic fundamentals and higher inflation could trigger an interest rate hike cycle in Taiwan, he said, but he did not specify when the central bank is expected to announce a tightening of its monetary policy.

On Thursday, the central bank decided in the latest quarterly policymaking meeting to leave its key interest rates unchanged for a 12th consecutive quarter.

The central bank has maintained the 1.875 percent discount rate, the 2.25 percent rate of accommodations with collateral, and the 4.125 percent rate of accommodations without collateral.

Phoo said the move is due to the central bank's desire to gather more evidence of upward pressure on interest rates before taking action.

Phoo said the local economy is recovering at a pace quicker than in 2010-2011 after a global financial crisis. He added during the last economic recovery cycle, the central bank boosted the discount rate to 1.875 percent from 1.25 percent.

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