Higher interest rate forecast for next year on commodities

The China Post news staff

The China Post news staff — Taiwan is likely to see a higher interest rate next year due to possible higher commodity prices despite industry concerns over potential revenue shortfalls, Taiwan Institute of Economic Research (TIER) said in a press conference yesterday.

The research institute made the forecast prior to a central bank board meeting yesterday afternoon, during which members raised key interest rates by 0.125 percent. TIER President Hung Te-sheng commented at the conclusion of the conference that pressure to curb inflation was the primary reason to adjust the interest rate upward, and judging from the higher commodity prices in recent months, especially the price of crude, “the inflation pressure appears to be building and it would be tough for the central bank to hold down the interest rate any longer next year if the trend persists.” But he was also careful to point out that the recent holiday months may have contributed to the upward trend in commodity prices. As for concerns that higher a interest rate may trigger an accelerated inflow of foreign capital that may result in an even stronger New Taiwan dollar and more revenue shortfalls for the export-focused manufacturing firms, TIER Macroeconomic Forecasting Center Director Chen Miao-chien pointed to the November TIER Manufacturing Sector Sentiment Index report, in which 20.1 percent of the surveyed companies held positive outlooks for the next six months, up 11.8 percent from October, and commented that all indications showed that the concern was not as well-grounded as believed. Also in the report are statistics that 13.2 percent of the surveyed manufacturing companies have negative outlooks for the coming six months, a marginal increase of 0.8 percent from the month before, and that 54.9 percent of the companies surveyed believed the economy would remain flat during the first half of next year, a drop of 12.6 percent from the previous year. “Although the busiest months for wholesale have passed and production slowed in October, overall businesses sentiment in the manufacturing sector remains optimistic for the coming months, as shown in the report,” Chen said. “The possibility of a higher interest rate and subsequent higher production costs did not appear to have the negative affect as feared.”