Central bank expected to leave rates unchanged amid tariff uncertainty

Taipei, March 3 (CNA) The Central Bank of the Republic of China (Taiwan) is expected to leave its key interest rates unchanged at its upcoming quarterly policymaking meeting scheduled for March 20, at a time when the local economy faces uncertainties created by a tariff war launched by the Trump administration, according to economists.

Speaking with CNA, Wu Meng-tao (吳孟道), head of the sixth research division of the Taiwan Institute of Economic Research (TIER), said the central bank is expected not to prioritize measures to stabilize consumer price fluctuations for the moment.

Instead, Wu said U.S. President Donald Trump's tariff threats are likely to be on the central bank's mind when board members discuss monetary policy at the quarterly meeting, as a possible tariff war could send ripples through global financial markets, and what the central bank has to do is to address likely future uncertainties.

After Trump took office on Jan. 20, he signed executive orders to impose tariffs on imports from China, Canada and Mexico, while threatening to introduce "reciprocal tariffs" without any exceptions.

In addition, Trump has repeatedly claimed Taiwan stole the chip business from the United States and the country could therefore be affected by potential tariffs on semiconductors to be imposed by his administration.

In December, the central bank left interest rates unchanged for the third consecutive quarter with the discount rate remaining at 2 percent -- still the highest in 15 years -- the rate on accommodations with collateral at 2.375 percent and the rate on accommodations without collateral at 4.250 percent.

A move for the central bank to maintain its monetary policy is expected to allow more flexibility for the bank to take on possible future volatility in the financial markets in the future as Trump's tariff hikes are likely to prompt other countries to retaliate, Wu said.

"Judging from the information I have, Trump is likely to impose reciprocal tariffs in April at the earliest and Taiwan is unlikely to escape them," Wu noted. "When Trump comes up with concrete tariff hikes, a global tariff war could follow. Before that, the central bank should stay steady and prepare itself for the impact."

Several major financial institutions have forecast Taiwan's consumer price index will grow less than 2 percent, below the alert set by the central bank, and the country's gross domestic product (GDP) growth will hit 3 percent this year, so it is unnecessary for the central bank to cut interest rates anytime soon, Wu said.

In December, the central bank forecast the local CPI will grow 1.89 percent and core CPI, which excludes fruit, vegetables and energy, will increase 1.79 percent in 2025, unchanged from previous estimates, while Taiwan's GDP will grow 3.13 percent this year.

However, with Taiwan Power Co. (Taipower) under pressure to raise electricity rates due to its massive accumulated losses and a cut in the Taipower budget by the Legislative Yuan, the state-own power supplier could raise electricity rates, which would push up inflation, Wu added.

A hike in electricity rates is expected to increase pressure for the central bank to raise interest rates, he said.

National Central University Research Center for Taiwan Economic Development Director Dachrahn Wu (吳大任) said while Taipower's electricity rate hike will push up inflation, a tariff war could hurt global trade, send commodity prices lower and undermine the world economy, which could offset the impact from rising inflationary pressure caused by higher power rates in the country.

Agreeing with Wu Meng-tao, Dachrahn Wu said the central bank is unlikely to make curbing inflation the focus of monetary policy right now and is expected to leave key interest rates unchanged on March 20.

Dachrahn Wu said in the wake of the impact from tariff hikes by Trump, the central bank could consider how to boost the economy rather than how to slow down inflation.