Central bank & think tanks forecast '13 inflation to ease

In addition, as growth in local vegetable and fruit prices is likely to slow due to a high comparison base recorded in 2012, and domestic communications fees are trending lower, the upward pressure in consumer prices is expected to be mitigated in 2013, the central bank said.

The comments echoed a forecast made by the Directorate General of Budget, Accounting and Statistics (DGBAS) in February which said the local consumer price index (CPI) for 2013 is expected to grow 1.37 percent, down from an increase of 1.93 percent recorded in 2012.

In addition to the slower growth in the local CPI forecast by the central bank and the DGBAS, the Taiwan Institute of Economic Research and the Chunghua Institute for Economic Research, two of the major think tanks in Taiwan, expect local consumer prices will rise 1.53 percent and 1.57 percent, respectively.

Global Insight, a worldwide economic institute, has also anticipated Taiwan's inflation will ease to 1.5 percent in 2013, while it has forecast that global inflation will fall to 3 percent this year from 3.2 percent recorded in 2012.

As the central bank's concerns over inflation has been reduced, market analysts said, the bank will likely leave its key interest rate unchanged in the upcoming policymaking meeting scheduled for March 28, in a bid to keep liquidity ample to boost the economy.

Several foreign banking groups, including Barclays, Standard Chartered Bank, and Australia and New Zealand Banking Group Ltd., have forecast the central bank will leave the interest rates intact in the meeting.

In the previous policymaking meeting held Dec. 19, the central bank maintained its key discount rate at 1.875 percent, the rate of accommodations with collateral at 2.25 percent and the rate of accommodations without collateral at 4.125 percent.

Meanwhile, the central bank said it will keep a close eye on the movement of the Japanese yen, which has fallen sharply as the Bank of Japan continues to ease liquidity to depress the currency.

The weakness of the yen has triggered a currency depreciation competition in the region with the central banks in Taiwan and South Korea stepping in to allow their currencies to fall in an attempt to protect their country's global competitive edge, analysts said.

The local central bank said the New Taiwan dollar appears relatively stable compared with the South Korean won, but it emphasized that it is determined to closely monitor the foreign exchange market and take necessary steps to maintain market order.

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