The Central Bank of Taiwan is expected to maintain its key policy rate due to concerns over potential chip tariffs, the impact of the AI industry, and inflation. Policymakers are closely monitoring the economic landscape to make informed decisions. This decision reflects the need to navigate through uncertainties and potential risks in the market. Maintaining the current policy rate since 2008 shows a cautious approach towards economic stability. Taiwan's central bank is keeping a close eye on external factors that could influence its monetary policy.
Representational image
Taiwan will likely keep its key policy rate at the highest level since 2008 as policymakers consider potential chip tariffs from the Trump administration, the outlook for the AI frenzy, and inflation. All 29 economists surveyed by Bloomberg expect the archipelago’s central bank to keep the benchmark rate unchanged at 2% for the fourth straight quarter when it meets on Thursday — and analysts are pushing back their prediction for easing to later next year.
The decision by the Central Bank of the Republic of China, as the institution in Taipei is formally known, comes as nations like the UK and Canada lower rates. The Fed held its rate steady on Wednesday, eyeing reductions later this year. Given the concerns Taipei’s policymakers face, such as President Donald Trump’s threat to slap 25% tariffs on semiconductors, the CBC may want “a policy buffer that gives it flexibility to deal with any market turbulence,” Bloomberg Economics analysts including Hyosung Kwon wrote in a recent note.
The Bloomberg News survey found that the median prediction is for a cut to 1.875% in the third quarter of next year. An earlier survey predicted a reduction to 1.750% in the first quarter of 2026. Taiwan’s consumer price index over the first two months of the year came in at 2.12%, just above the central bank’s comfort level of 2%. Rising food, services, and rent costs are fueling price pressures, central bank Governor Yang Chin-long told lawmakers last week. A potential electricity price hike to offset losses by state-owned Taipower could add to the strain.
Yang added that Taiwan would monitor how Trump policies affect the global economy and financial markets, and the CBC would most likely cut rates when CPI fell under 1.5%. Taiwan’s exports grew at the fastest pace in three years in February, a sign that foreign demand for the tech products Taiwan specializes in continued to underpin growth. Taiwan Semiconductor Manufacturing Co., by far the archipelago’s largest company, reported revenue climbed 39% in the first two months, quickening from 2024, underscoring the appetite for semiconductors that power AI development.
Still, investors are debating how long the AI boom will last, especially after China’s DeepSeek seemed to show a more frugal approach was possible compared to other options. This month, Taiwanese shares saw their worst-ever selling streak by foreign investors as the tech-heavy market got caught up in a drawdown in global chip stocks. —With assistance from Cynthia Li.