Taiwan’s inflation is expected by the central bank to fall to about 2 percent in 2023, an alert level set by the bank, due to a fall in international crude oil prices as well as a decline in freight rates.
In a written report released Friday in preparation for the central bank’s participation in a hearing planned by the Legislative Yuan’s financial committee for March 1, the central bank said although Taiwan continued to raise the minimum wage and saw rising demand for entertainment and other services amid eased COVID-19 concerns, the country is expected to benefit from a fall in raw material prices.
In addition, disruptions in the global supply chains have been decreasing, and along with a fall in freight rates, Taiwan’s consumer price index (CPI) growth for 2023 is expected to fall to around 2 percent from 2.95 percent seen in 2022, the highest growth since 2008, when the CPI rose 3.52 percent.
According to the central bank, research institutes at home and abroad have forecast that Taiwan’s CPI growth will range between 1.40 percent and 2.60 percent in 2023, with an average estimate of 1.94 percent.
The central bank appeared more upbeat about Taiwan’s inflation than the Directorate General of Budget, Accounting and Statistics (DGBAS), which forecast last week that the local CPI would grow 2.16 percent, an upgrade of 0.3 percentage points from its earlier estimate made in November.
According to the central bank, Taiwan’s economy is expected to grow at a mild pace in 2023, citing local and foreign institutions as saying that the gross domestic product (GDP) growth for this year will be about 2.21 percent.
Last week, the DGBAS anticipated that Taiwan’s GDP will grow 2.12 percent in 2023, a cut by 0.63 percentage points from its previous estimate made in November, saying weakening global demand will affect the exports-oriented local economy.
The central bank said a slowing global economy and inventory adjustments were expected to cap Taiwan’s economic growth and prompt many companies to become cautious about the business outlook and lead them to scale back their capital expenditure or postpone investment plans in 2023.
However, the central bank said, as with the reduction of movement restrictions and eased border controls amid COVID-19, private consumption is expected to increase, adding that the government’s plan to distribute NT$6,000 (US$197) in cash handouts to all nationals and permanent residents soon is expected to boost consumer spending further and give a boost to the economy.
Also on Friday, Chang Chien-yi (???), president of the Taiwan Institute of Economic Research (TIER) and one of the directors of the central bank, said a move by the DGBAS to raise its CPI growth forecast indicated there was still room for the central bank to raise interest rates as Taiwan remained under pressure from inflation.
Chang said the central bank cared very much about inflation and a spike in the prices of eggs amid climate change and other daily necessities needed to be addressed.
In January, Taiwan’s CPI rose 3.04 percent from a year earlier, the highest since July 2022, when the index moved up by 3.35 percent year-on-year, with food prices rising 5.27 percent from a year earlier.
To take on rising inflation, the central bank has raised its key interest rates by 62.5 basis points after it kicked off a rate hike cycle in March 2022.
As the DGBAS has lowered its forecast of Taiwan’s GDP growth for 2023, how the central bank will adjust its monetary policy will be critical to the local economy, Chang said, adding although he supports an increase in interest rates, this will be decided on by a vote in the next policymaking meeting scheduled for March 23.
Meanwhile, the central bank disclosed in its written report that it recorded a net sell of US$13 billion in the greenback in 2022 as it stepped into the foreign exchange market to boost the Taiwan dollar against the U.S. dollar as foreign investors rushed to move their funds out of Taiwan during an aggressive rate hike cycle by the U.S. Federal Reserve and volatility in the local equity market.
In 2022, the U.S. dollar rose by 9.83 percent against the Taiwan dollar, the highest appreciation in 25 years.
The central bank said foreign institutional investors sold a net NT$1.14 trillion (US$39.1 billion) worth of shares on the local equity market in 2022, and also remitted large cash dividends from their stock investments, creating heavy downward pressure on the Taiwan dollar.
After a plunge in 2022, however, the Taiwan dollar has reversed its weakness since the beginning of this year, appreciating by about 0.67 percent against the U.S. dollar as of Feb. 22, the central bank said in the report.
As Taiwan is a relatively small and open economy and heavily depends on exports, it is necessary for the central bank to intervene to maintain the stability of the local currency, the central bank said.
Due to this intervention, the bank added, the fluctuations of the Taiwan dollar appeared milder than those of the Singapore dollar, the euro, the Japanese yen and the South Korean won in the longer term and such efforts have benefited exporters and stabilized the local financial markets as well as Taiwan’s economic development.
Source: Focus Taiwan News Channel