Taiwan’s central bank is widely anticipated to maintain its policy interest rate at the current level of 2 percent during its upcoming quarterly meeting on Thursday, reflecting confidence in the island’s robust economic growth despite inflation concerns. According to a Reuters poll conducted on Monday, all 33 economists surveyed expect the central bank to hold rates steady this week and throughout 2025, barring any significant economic shifts.
The central bank last adjusted the benchmark discount rate in March 2023, raising it from 1.875 percent to 2 percent in anticipation of rising electricity prices. Since then, the bank has opted for a cautious approach, maintaining this rate in its September meeting and signaling confidence in Taiwan’s economic fundamentals.
The decision to keep rates steady comes as Taiwan enjoys a booming economy, driven largely by its role in the global technology supply chain. Demand for semiconductors, particularly from the artificial intelligence (AI) sector, has fueled growth for companies like Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest contract chipmaker.
According to Taiwan’s Directorate-General of Budget, Accounting and Statistics, the island’s gross domestic product (GDP) is expected to grow by over 4 percent in 2023, marking one of the strongest performances in the region. However, growth is projected to moderate slightly to 3.3 percent in 2024 as the global AI frenzy stabilizes.
While Taiwan’s economic growth remains robust, inflation poses a challenge. November’s consumer price index (CPI) rose by 2.08 percent year-on-year, surpassing expectations and breaching the central bank’s 2 percent “warning line.”
The central bank has consistently emphasized controlling inflation as a key priority. “Inflation is being felt but it’s not that terrible,” said Hsu Chih-yen, an economist at MasterLink Securities. He noted that while inflationary pressures exist, they are not severe enough to warrant an immediate policy shift.
The cautious approach is partly informed by external factors, including the anticipated actions of the U.S. Federal Reserve. The Fed is expected to reduce interest rates by a quarter percentage point during its Dec 17-18 meeting, potentially signaling the beginning of a monetary easing cycle in 2024. However, Taiwan’s central bank appears committed to its current stance, regardless of the Fed’s actions.
“Even with the Fed still expected to be in a rate cycle cut into the first half of next year, Taiwan’s central bank won’t move,” Hsu added.
Taiwan’s economic trajectory is closely tied to global trends, particularly in technology and trade. The ongoing demand for AI-related products and services has underpinned strong export performance, but uncertainties loom. Trade tensions between the United States and China, as well as potential disruptions to global supply chains, could pose risks to Taiwan’s export-dependent economy.
Domestically, inflationary pressures have been compounded by higher energy prices and wages. Taiwan’s government implemented an electricity price hike earlier this year to address rising operational costs for utility companies. This, along with a tight labor market, has contributed to upward pressure on prices.
To address these challenges, the central bank is expected to revise its economic growth and inflation forecasts for 2023 and 2024 during Thursday’s meeting. Analysts anticipate a slight downward adjustment to growth projections for next year, reflecting a more tempered global economic outlook.
Taiwan’s central bank has consistently demonstrated a commitment to balancing economic growth with price stability. By holding interest rates steady, the bank aims to support continued investment and consumer spending while keeping inflation under control.
“Taiwan’s economy is on solid footing thanks to the AI-driven boom, but the central bank must tread carefully to ensure inflation doesn’t spiral out of control,” said an economist from a major local bank who wished to remain anonymous.
The decision to maintain the current rate is also seen as a nod to the island’s long-term economic strategy. With Taiwan positioning itself as a global technology leader, stable monetary policy can help foster a conducive environment for innovation and growth.
Despite the optimistic economic outlook, challenges remain. The semiconductor industry, which accounts for a significant portion of Taiwan’s exports, faces increasing competition from other countries and potential geopolitical risks. The United States, for instance, has been encouraging domestic semiconductor manufacturing as part of its broader effort to reduce reliance on Asia.
Furthermore, Taiwan’s population is aging rapidly, creating long-term challenges for labor supply and economic productivity. These structural issues underscore the need for forward-looking policies to sustain growth and address demographic shifts.
Taiwan’s decision to hold rates contrasts with the approach of other central banks in the region. For example, South Korea’s central bank has signaled a potential rate cut in the coming months, citing slowing economic growth. Similarly, Japan has maintained ultra-low interest rates to spur its sluggish economy.
By comparison, Taiwan’s central bank is navigating a middle path, neither tightening nor loosening monetary policy in the near term. This measured approach has been well-received by economists, who view it as appropriate given the island’s unique economic dynamics.
Economists predict that Taiwan’s central bank will continue its steady course throughout 2025, provided that inflation remains within manageable limits and external economic conditions do not deteriorate significantly.
“The current policy stance allows the central bank flexibility to respond to any unexpected shocks,” said Amy Lin, an economist with Fubon Financial. “It’s a prudent strategy in a world where uncertainties abound, from geopolitical tensions to shifts in global demand.”
Thursday’s meeting is expected to reaffirm the central bank’s commitment to stability while providing updated insights into its economic outlook. For now, Taiwan appears well-positioned to navigate the challenges ahead, supported by a strong foundation of technological innovation and strategic policymaking.
