The central bank on Thursday announced that it has decided to raise its key interest rates by 12.5 basis points after wrapping up a quarterly policymaking meeting, at a time when many central banks in the world are gearing up to fight inflation.

It was the second consecutive quarter the local central bank has increased interest rates, and the rate hike was expected by many market analysts, in particular after the U.S. Federal Reserve raised interest rates by 75 basis points overnight.

After the rate hike, the central bank’s discount rate, which rose from a historic low of 1.125 percent to 1.375 percent in March, will rise to 1.5 percent, according to the bank.

The rate on accommodations with collateral will grow to 1.875 percent, while the rate on accommodations without collateral will rise to 3.75 percent, the central bank said.

The rate hikes become effective Friday.

In addition, the central bank has also decided to raise the required deposit reserve ratio, which is the fraction of deposits regulators require banks to hold in reserves and not loan, by 25 basis points. The move is expected to drain funds from the market as an additional way to reduce liquidity levels and inflation.

Analysts said the smaller rate hike by the local central bank, compared with the Fed’s decision, reflected the lower level of inflationary pressure in Taiwan.

In May, Taiwan’s consumer price index rose 3.39 percent from a year earlier, the highest growth in almost 10 years and the third consecutive monthly increase in excess of 3 percent. CPI growth remains well above the 2 percent alert set by the central bank.

In the United States, however, the May CPI soared 8.6 percent from a year earlier, the fastest increase in four decades, highlighting the country’s more pressing inflation problem and prompting the Fed to take a more hawkish position.

Source: Focus Taiwan News Channel