Central bank likely to raise rates: experts

Liang Kuo-yuan, president of Polaris Research Institute, said prices had been stable during the first half, and May's consumer price index (CPI) grew by a small 1.66 percent from the same period last year. For the whole year, Taiwan's CPI should grow 2 percent from 2010, which should not raise too much concern, he said.

At the same time, Taiwan's economy is likely to become more tepid during the second half, in line with the performance of the global economy. Imports may remain expensive, due to an increase in raw material prices. These factors will combine to cause the central bank to raise rates, albeit by a slight margin of 0.125 percent, Liang said.

Yang Chia-yen, a researcher with the Taiwan Institute of Economic Research, offered a similar forecast, saying the central bank will only raise rates marginally given the island's price stability.

Meanwhile, he predicted that the United States will launch a third round of quantitative easing (QE) measures, which are set to cause more hot money to flow into other parts of the world, especially Asia. The move is likely to result in a rise of the New Taiwan dollar. “Raising interest rates at this point is unnecessary,” he said.

As for foreign institutional investors, Goldman Sachs said the central bank is likely to raise rates by 0.125 percent. The monetary authority is also likely to raise rates by the same margin next quarter and by 0.25 percent by the end of the year, it said.

Barclays Capital, which recently forecasted Taiwan's growth this year to be 6 percent, said the bank will raise rates by 0.125 percent this Thursday and during each subsequent quarter to lift the discount to 2.125 percent or above by the yearend.

Barclays based its forecast on the fact the central bank in March raised the rates for negotiable certificates of deposit by 8 to 9 basis points, instead of the five to six originally forecasted. “The monetary authority's intention to get banks to raise rates is obvious,” Barclays said.

DBS meanwhile predicted Taiwan's inflation will come to 2 percent compared to last year, higher than the one-year deposit rate of 1.3 percent to 1.4 percent. DBS believes that the central bank will raise rates by 0.125 percent now and by 0.25 percent during its Q3 and Q4 meetings to lift the discount rate to 2.375 percent by the yearend.

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