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Taiwan central bank says it will respond appropriately to economic uncertainty

FILE PHOTO: People wearing face masks to prevent the spread of the coronavirus disease (COVID-19) and carrying umbrellas walk on the street during a rainy day in Taipei, Taiwan, November 26, 2021. REUTERS/Annabelle Chih

FILE PHOTO: People wearing face masks to prevent the spread of the coronavirus disease (COVID-19) and carrying umbrellas walk on the street during a rainy day in Taipei, Taiwan, November 26, 2021. REUTERS/Annabelle Chih

TAIPEI :Taiwan's central bank said on Tuesday it expects economic growth to decline and inflation to rise this year and that it will take appropriate steps in a timely way to respond to economic uncertainty.

At its last quarterly meeting in March, the central bank unexpectedly raised the benchmark discount rate by 25 basis points (bps) to 1.375per cent to help fend off inflation.

It has repeatedly said it will head in a tightening direction this year, following other major economies, and that it sees inflation as a key criteria for rate moves.

In its annual financial stability report, the central bank said globally growth would slow and inflation increase due to the war in Ukraine, with financial markets affected by uncertain factors like the expected withdrawal of monetary stimulus.

While Taiwan's export and private investment is expected to continue, consumption will be hit by the island's COVID-19 outbreak, and Russian's invasion of Ukraine and supply chain bottlenecks will push up prices, it added.

"It is expected that economic growth will slip and inflation will rise," the central bank said.

This year is seeing uncertainly due to the "tense geopolitical situation", soaring raw material prices, and the accelerated tightening of monetary policies by major economies, increasing financial market volatility and the downside risk to the global economy, it added.

"The bank will pay close attention to the possible fall-out, and take appropriate measures in response to promote domestic financial stability."

Taiwan's April consumer price index (CPI) rose an on-year 3.38per cent, above market expectations for a 3.25per cent increase and rising above the central bank's 2per cent target for the ninth month in a row, though inflation was still lower than in other major economies like the United States.

Taiwan's statistics agency last week lowered its gross domestic product (GDP) forecast for 2022 to 3.91per cent, down from 4.42per cent growth forecast in February, even as its raised its export prediction for the year.

The central bank will give its revised forecast for economic growth this year at its June 16 rate-setting meeting, having predicted a 4.05per cent expansion in March.

(Reporting by Liang-sa Loh and Ben Blanchard, editing by Ed Osmond & Simon Cameron-Moore)

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