Central bank likely to leave interest rates steady for 9th straight quarter

Taipei, May 30 (CNA) Taiwan's central bank is expected to leave its key interest rates unchanged for the 9th consecutive quarter in the next quarterly policymaking meeting scheduled for June 18, despite strong domestic economic growth during the AI boom, according to economists.

With military conflicts in the Middle East pushing up international crude oil prices, which in turn is fueling inflation, some major central banks, including the European Central Bank (ECB) and the U.S. Federal Reserve, have turned hawkish, economists said.

However, Cathay United Bank chief economist Lin Chi-chao (林啟超) told CNA earlier this week that the local central bank still sees no urgency to tighten its monetary policy for now, despite a strong economic performance, as Taiwan's consumer price index (CPI) growth is likely to stay below the 2 percent alert set by the bank this year.

On Friday, the Directorate General of Budget, Accounting and Statistics (DGBAS) raised its forecast of Taiwan's 2026 GDP growth to 9.64 percent from 7.71 percent, citing an AI-driven increase in exports and investments. The DGBAS has also raised CPI growth to 1.93 percent, but that is still shy of the 2 percent warning.

Lin said the government's price stabilization measures to freeze prices of domestic gasoline, diesel, natural gas, and electricity have eased the impact of rising crude oil prices.

He said the central bank is likely to maintain its monetary policy not only in the second quarter, but also in the third quarter.

In the first quarter policymaking meeting in March, the central bank left the discount rate unchanged at 2 percent, still the highest level in 15 years.

Lin said the central bank has to consider the impact of higher interest rates on consumer consumption as the current AI-driven economic growth fails to boost private consumption significantly. He added that any interest hikes could also affect the local property market as home buyers need to shoulder higher mortgage rates.

Wu Meng-tao (吳孟道), an economist at the Taiwan Institute of Economic Research (TIER), said the market has widely anticipated the ECB will hike interest rates by 25 basis points in June amid growing inflationary pressure.

Wu said the U.S. Fed has also become hawkish in rhetoric but is unlikely to make any move until the CPI growth breaches 4 percent. In April, the U.S. CPI rose 3.8 percent from a year earlier, the highest since May 2023.

Wu said the local central bank appeared passive and cautious and will not adjust its policies before its counterparts do so, adding that it needs more time to observe the situation.

Wu said he did not rule out the possibility that the central bank will not raise interest rates through the end of this year.