Taiwan's Monetary Policy
Taiwan has stated that they are going to end their 5 quarter long rise in interest rates to banks and leave it at 1.875%. This rate is comparatively low compared to other countries. The graph below indicates what would happen if Taiwan increased their interest rates above 1.875% and continued to rise. Consumer spending would go down, and in effect inflation would also decrease. This policy is known as the contractionary policy, which mainly focuses on decreasing inflation but at the same time decreases consumer spending, which will decrease economic growth.
http://www.bloomberg.com/news/2011-09-29/taiwan-s-central-bank-keeps-benchmark-rate-unchanged-at-1-875-.html#
http://www.bloomberg.com/news/2011-09-29/taiwan-s-central-bank-keeps-benchmark-rate-unchanged-at-1-875-.html#