(March 19): Taiwan left its key policy rate unchanged for the eighth straight quarter — the longest run since 2019 — giving it room to monitor the economic impact of the Iran War.
The central bank left the benchmark rate unchanged at 2%, according to a statement released after its quarterly meeting on Thursday. All 28 economists surveyed by Bloomberg predicted the hold.
The decision by the Central Bank of the Republic of China (CBC), as the institution in Taipei is formally known, comes as the world watches the third week of fighting in the Middle East, a conflict that has jolted markets and sent oil prices higher.
Taiwan’s economy has been buoyed in recent years by strong global demand for its high-end tech products like semiconductors and servers as companies race to develop artificial intelligence (AI). There are ample signs the AI boom has room to run. Nvidia Corp chief executive officer Jensen Huang has predicted that the company’s flagship AI processors would help generate US$1 trillion (RM3.91 trillion) in sales through 2027.
Underscoring optimism the economy will remain strong, the central bank raised its forecast for growth this year to 7.28%, up from 3.67%. It said expansion would slow as the year progressed, growing 11.56% in the first quarter but just 2.60% in the last three months.
Yet a prolonged conflict in the Middle East risks choking off key supplies for chipmakers and spiking the cost of power in Taiwan. Government officials and Taiwan Semiconductor Manufacturing Co — chipmaker for Nvidia’s advanced AI accelerators — have offered reassurances on production but the uncertainty gave the CBC a strong incentive to stand pat for now.
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Highlighting the cautious approach the CBC is taking, the median estimate of the economists surveyed by Bloomberg is for the central bank to hold its policy rate until the end of next year.
Taiwan’s central bank also lifted its prediction for the consumer price index this year to 1.8%, up from the previous 1.63% and compared to its 2% alert level. The CBC’s statement pointed to the war in the Middle East pushing up prices for oil and other commodities.
Talk of a rate cut at some point is slowly giving way to the possibility of tightening down the road, given the rapid economic growth and some improvement in the consumer sector.
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A key measure of consumer confidence has inched higher to start the year, now hovering near the highest level since April last year, according to the Research Centre for Taiwan Economic Development, a non-governmental organisation.
Hyosung Kwon, Korea and Taiwan economist for Bloomberg Economics, wrote on Wednesday that “if oil prices remain elevated and inflation drifts higher, policymakers may need to consider tightening later this year”.
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