Taiwan Seen Holding Policy Rate Even as Inflation Speeds Up

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(Bloomberg) — Taiwan’s central bank is expected to leave its benchmark interest rate unchanged for a ninth straight quarter, though a roaring economy and accelerating inflation are creating pressure for it to join other Asian economies in turning hawkish.

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Some 27 of 29 economists surveyed by Bloomberg News predicted a hold at 2% — the highest since 2008 — when the monetary authority in Taipei convenes its quarterly meeting on Thursday.

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The two financial institutions predicting hikes were Goldman Sachs Group Inc. and Barclays Bank Plc, which both foresee increases of 12.5 basis points. In a note last week, Goldman acknowledged the risk of a hold but pointed to “extraordinary and sustained strength of tech exports” among the factors allowing for a hike.

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The decision on the policy rates comes as central banks around Asia start boosting rates because the Iran war has pushed up energy costs, leading to inflation risks. The Bank of Japan raised its benchmark rate this week to the highest since 1995 and pledged more increases.

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On Wednesday, the US Federal left interest rates unchanged and signaled growing support for rate hikes this year. The monetary authority in Taipei often tracks the Fed’s moves to avoid big cross-border capital flows due to a rate gap.

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In May, Taiwan’s consumer inflation sped past the monetary authority’s alert threshold of 2% — the first time it has reached that level in a year.

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That coincided with Taiwan’s robust economic growth, which has been underpinned by huge demand for its tech products, like high-end semiconductors. In May, Taiwan revised up its economic growth forecast for the year and said export growth would hit a stunning 39.8% — the highest since 1976.

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The central bank will also give an update on its 2026 economic growth forecast on Thursday.

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Last week, central bank Governor Yang Chin-long told lawmakers that while prices in Taiwan have risen, they remained relatively stable compared to other economies. Prices reaching the 2% level doesn’t mean interest rates have to be raised, he added.

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Still, a main concern for the central bank is that while the tech sector is thriving, manufacturers in sectors like chemicals, consumer goods, and metals and machinery have seen weak output over the first four months of the year. That underscores the hit firms are taking from rising prices of energy and inputs.

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Hyosung Kwon, an economist at Bloomberg Economics, predicted Taiwan’s monetary authority would hold on Thursday, though “the conditions for a rate hike are gradually falling into place.”

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(Updates with Fed holding rates.)

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