Taiwan set to hold rates steady with economy strong
TAIPEI :Taiwan's central bank is likely to maintain its policy interest rate this week and keep it steady through the first quarter of next year, given the strong performance of the tech-focused economy, according to economists in a Reuters poll.
In March, the central bank left the benchmark discount rate at 2 per cent, as expected, after raising it from 1.875 per cent in March 2024 in anticipation of a rise in electricity prices.
At its next quarterly meeting on Thursday, it is expected to keep the rate steady, according to 29 of the 30 economists surveyed.
Economists who provided forecasts beyond this week predicted the bank will maintain its stance through the first quarter of 2026, when they forecast a rate cut to 1.875 per cent.
Taiwan's tech-centred, export-dependent economy has been supported by demand from the artificial intelligence boom, which has driven orders for companies such as TSMC, the world's largest contract chipmaker.
"Taiwan's economy is stable and inflation is moderate, so there is no need to cut interest rates," said analyst Chiang Kuang-yu of Masterlink Investment Advisory.
The economy is expected to expand 3.1 per cent this year due to the AI boom, the government's statistics agency said last month, though that is slower than last year's growth of 4.59 per cent given uncertainty over U.S. tariffs.
On inflation, Taiwan's consumer price index (CPI) rose by a lower-than-forecast 1.55 per cent in May, its lowest level in more than four years. The central bank, which considers 2 per cent its "warning" line, has made easing inflation a priority.
Still, Taiwanese policymakers have warned of the impact to the trade-dependent economy posed by higher tariffs threatened by U.S. President Donald Trump. Taiwan and the United States remain in talks to resolve the issue.
The central bank is expected to maintain a wait-and-see stance before the end of Trump's 90-day pause on his "reciprocal" tariff rates in early July, Oxford Economics said in a research report.
"However, with tariff risks potentially re-emerging from the third quarter and the real estate market continuing to cool, the central bank is projected to initiate an interest rate cut cycle by the end of this year," it added.
The Taiwan central bank decision will come one day after the U.S. Federal Reserve, which is widely expected to hold interest rates steady.
The Taiwan central bank will also announce its revised economic growth and inflation forecasts for this year on Thursday.
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