Economic Strength and Inflation Concerns Drive Decision

According to a recent Reuters poll, Taiwan's central bank is likely to keep its policy interest rate unchanged this week and throughout next year, reflecting the nation's robust economic performance and ongoing efforts to manage inflation.

The central bank had previously set the benchmark discount rate at 2 per cent during its last quarterly meeting in September, a level it had reached after a March increase in response to electricity price hikes. At its upcoming quarterly meeting on Thursday, economists predict the rate will remain steady.

Taiwan's export-driven, tech-centered economy has been thriving due to the artificial intelligence boom, significantly boosting orders for major companies like TSMC, the world's largest contract chipmaker. The economy is projected to grow over 4 per cent this year, with a slight slowdown to 3.3 per cent anticipated next year.

Despite this positive outlook, inflation remains a concern. Taiwan's consumer price index rose by 2.08 per cent in November, surpassing forecasts. The central bank views 2 per cent as a "warning" threshold and is prioritizing efforts to reduce inflation.

Economists like Hsu Chih-yen of MasterLink Securities believe the central bank will likely maintain its current stance given the moderate inflation levels. "Inflation is being felt but it's not that terrible," Hsu said, adding that despite the US Federal Reserve's expected rate cuts, Taiwan's central bank is unlikely to follow suit.

The US Federal Reserve is expected to reduce rates by a quarter point at its upcoming December 17-18 meeting. Meanwhile, the Taiwan central bank will announce its revised economic growth and inflation forecasts for this year and next on Thursday.