Taiwan's central bank kept interest rates unchanged Thursday, holding policy steady even as geopolitical tensions and energy price shocks complicate the economic outlook. The decision to hold the benchmark discount rate at 2% marks the eighth straight meeting without policy adjustment.
The Central Bank of the Republic of China left its discount rate at 2.000%, with secured lending rates at 2.375% and unsecured lending rates at 4.250%. The Board's decision was unanimous and in line with market expectations. Taiwan has kept its policy rate unchanged since a hike in March 2024.
GROWTH SURGE OFFSETS INFLATION RISKS
The central bank's confidence in holding rates stems largely from Taiwan's robust economic performance. Policymakers raised their 2026 growth forecast to 7.28% from 3.67% projected in December, reflecting the island's dominant position in artificial intelligence chip manufacturing. Taiwan's economy expanded 8.68% in 2025, its fastest pace in 15 years, driven by surging global demand for semiconductors used in AI applications from companies including Nvidia.
The central bank said "the proliferation of commercial applications of emerging technologies would continue to buttress Taiwan's export strength and drive up private investment," signaling confidence that the AI boom will sustain growth momentum.
Yet the central bank acknowledged mounting inflation pressures, raising its consumer price index forecast for 2026 to 1.80% from 1.63% previously. The upward revision reflects escalating energy costs stemming from Middle East conflict, which has sent crude oil prices above $100 per barrel. Governor Yang Chin-long said: "The government has taken steps to temper inflation pressures, and there is no need for rate hikes at this stage."
GEOPOLITICAL UNCERTAINTY CLOUDS OUTLOOK
The Middle East conflict has emerged as a critical variable in Taiwan's policy calculus. The Federal Reserve said on Wednesday that the implications of developments in the Middle East for the U.S. economy were uncertain. Ahead of the meeting, Cathay United Bank chief economist Lin Chi-chao said the central bank "needs more time to observe the Middle East situation" given the volatile energy environment.
Taiwan's decision came one day after the Federal Reserve held rates steady and signaled expectations for only a single rate reduction this year, projecting higher inflation and steady unemployment.
RATES AT HIGHEST SINCE 2008
Taiwan's 2% discount rate, reached with a hike in March 2024, is the highest level since 2008. The last time the central bank eased policy was in 2020, during the pandemic emergency.
Ahead of the meeting, Taiwan's one-year interest-rate swaps had climbed to record highs as fixed-income investors priced in a possible rate hike within 12 months, the Taipei Times reported.