Taiwan c. bank expected to hold steady on rates

Taiwan’s central bank is widely expected to maintain its current interest rate this week, according to a Reuters poll of economists published on Tuesday. This follows a surprise rate hike in March, the first in over a year, due to rising inflation.

The central bank raised its benchmark discount rate to two per cent in March due to inflation concerns and upcoming electricity price hikes. Economists expect the rate to stay the same at this week’s meeting on Thursday.

Economists predict the central bank will likely wait until the third quarter of 2025 to cut rates, with a median estimate of 1.875 per cent. Governor Yang Chin-long has hinted at a cautious approach for this meeting.

Taiwan’s consumer price index (CPI) rose 2.24 per cent in May, exceeding forecasts and surpassing April’s 1.95 per cent increase. Rainy weather impacting food prices is expected to push inflation even higher in June.

Economist Kevin Wang predicts the central bank will keep rates steady this week, but a potential increase may come in September. He expects inflation to rise above three per cent, leading to upward pressure on rates.

Despite inflation concerns, Taiwan’s tech-driven, export-reliant economy is performing well. The artificial intelligence boom is driving orders for companies like TSMC, the world’s largest contract chipmaker, and Taiwan’s stock market is at record highs.

The central bank raised its 2024 GDP growth forecast to 3.22 per cent in March, up from a previous estimate of 3.12 per cent. This follows a slow 1.31 per cent growth in 2023. The bank is also expected to revise its economic growth and inflation projections on Thursday.