Most forecasters see the Central Bank of the Republic of China keeping its policy rate unchanged at 2% at this week's quarterly meeting. Seven economists think the next step is a 12.5 basis point increase. If officials stand pat, that would make it 10 quarters in a row without a change, the longest such stretch since 2019. The current policy rate is also at its highest level since 2008.
Taiwan's economy has been sprinting, with the fastest first-half expansion since 1976 as demand for high-end tech exports like semiconductors surges. Yet inflation has cooled: August CPI came in well below expectations. Electricity prices have been held down as the government has directed subsidies to state-run energy firms to counter increased costs arising from conflict in the Middle East. Core CPI rose 2.30% in August, and the producer price index jumped more than 16.7%, near the peak since the data series began in 2021.
"Softer inflation has given policymakers more room to wait, with headline CPI easing toward the CBC's 2% alert line as food prices moderated," wrote Hyosung Kwon, Korea and Taiwan economist at Bloomberg Economics. Kwon also noted that local elections in November "argue for patience, as the CBC is likely to avoid any move that could appear politically motivated." Looking ahead, Kwon said Taiwan is expected "to begin a gradual tightening cycle in December" because "core inflation remains sticky, while the AI boom is increasingly spilling over from exports into investment, wages and domestic demand."
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Taiwanese lenders would welcome a hold. Liquidity was constrained over the summer, and cutting rates would also lower banks' funding costs. The US Federal Reserve's quarter-point increase on Wednesday - its first since 2023 - adds another consideration, since a wider US-Taiwan rate gap tends to pull capital out of Taiwan and could eventually push the CBC toward hiking.
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