Taiwan Central Bank Holds Rates Steady, Cites Inflation Concerns and Strong Growth Forecast

Taiwan's Central Bank maintained its policy interest rate at 2% for the ninth consecutive board meeting, aligning with market expectations. Central Bank Governor Yang Chin-long, shedding his "Mr. Surprise" moniker, emphasized that while the rate remains unchanged, the bank will closely monitor inflation risks. He revealed that two board members had proposed a rate increase, citing robust domestic economic performance and projections that consumer price index (CPI) annual growth will exceed 2% for three consecutive quarters starting in the second quarter.

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Although the rate remains unchanged this time, we still need to closely observe inflation risks, and some board members still expressed concerns about future price risks, which also indicates that the current central bank's monetary policy tone is 'hawkish' rather than shifting to easing.

The bank significantly revised its economic growth forecast for the year upward to 9.45%, an increase of 2.17 percentage points from its March prediction. It also raised the projected average international oil price for the year to $90 per barrel from $85. Despite these adjustments, the bank微-adjusted the CPI and core CPI annual growth rates to 1.91% and 1.9% respectively, attributing this to government measures to stabilize prices.

Regarding potential future rate hikes, Yang stated that global central banks are focused on inflation. Although international oil prices have fallen below $80 per barrel, future trends remain uncertain. He noted that the U.S. Federal Reserve, despite raising its core PCE inflation forecast, is observing the situation rather than immediately increasing rates. Yang indicated that Taiwan's inflation rate is expected to remain below 2% this year and likely below 2% next year, which is why most board members supported maintaining the current rate. The bank will reassess monetary policy direction in September and December based on "data dependent" analysis.

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The bank will continue to observe domestic and foreign economic and financial situations, be 'Data Dependent,' and re-examine relevant data in the September and December board meetings before deciding on the future direction of monetary policy.

Unusually, the central bank's post-meeting press release highlighted the active trading in Taiwan's stock market, cautioning banks about rapid growth in loans for working capital and related credit expansion risks. However, Yang stressed that the stock market's rise is supported by strong economic fundamentals, particularly the AI boom driving corporate profits and economic growth, distinguishing it from past economic downturns. While acknowledging the "four loans together" phenomenon as a popular market topic, he stated it has not reached an uncontrollable level, but the central bank will remain vigilant about excessive credit expansion.

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Although the current rise in Taiwan's stock market is supported by strong economic fundamentals, and the current AI boom is driving corporate profits and economic growth, it is different from the weak economic conditions before the outbreak of several financial crises in the past.