Taiwan’s Central Bank Poised to Maintain Steady Interest Rates Amid Inflation Concerns

In a crucial decision this week, Taiwan’s central bank is widely anticipated to keep its policy interest rate unchanged, according to a recent Reuters poll. This expectation follows a surprise rate hike in March, where the benchmark discount rate was raised from 1.875% to 2% due to persistent inflationary pressures and anticipated increases in electricity prices.

The upcoming quarterly meeting on Thursday has garnered significant attention, with 29 out of 31 economists surveyed by Reuters predicting no change in the rate. The consensus suggests that the central bank will maintain this stance until late next year, reflecting ongoing concerns about inflation.

Governor Yang Chin-long’s recent statements support this forecast, as he indicated there would be no surprises at this week’s meeting. This steady approach is driven by Taiwan’s inflation trends, with the consumer price index (CPI) rising by 2.24% in May, exceeding both the forecast and April’s 1.95% increase. Economists expect inflation to rise further in June due to adverse weather conditions affecting food prices.

Kevin Wang, an economist at Taishin Securities Investment Advisory, highlighted that while the central bank is likely to keep the rate unchanged this time, another rate hike could be imminent in September if inflation exceeds 3%.

The broader economic context also plays a role. Taiwan’s technology-centric, export-dependent economy is performing well, buoyed by the artificial intelligence boom and strong demand for TSMC, the world’s largest contract chipmaker. This robust economic performance is mirrored in Taiwan’s stock market, which has reached record highs.

In March, the central bank revised its GDP growth forecast for 2024 upwards to 3.22%, from a previous estimate of 3.12%. Despite this optimistic outlook, the economy grew by only 1.31% in 2023, marking its slowest pace in 14 years.

This week, the central bank will also release updated economic growth and inflation forecasts, providing further insights into the future trajectory of Taiwan’s economy and monetary policy.

Globally, central banks are also making significant moves. The European Central Bank recently enacted its first interest rate cut since 2019, and the U.S. Federal Reserve is expected to maintain its interest rates at its upcoming meeting.

Taiwan’s central bank’s cautious approach underscores its commitment to balancing economic growth with inflation control. As the global and domestic economic landscapes evolve, the central bank’s decisions will be pivotal in shaping Taiwan’s economic stability and growth trajectory.