Economists predict that the Central Bank of the Republic of China (Taiwan) will maintain its key interest rates at the upcoming quarterly policymaking meeting scheduled for March 20, as Taiwan’s economy faces increasing uncertainties linked to the ongoing trade tensions triggered by U.S. tariffs under President Donald Trump’s administration.
Wu Meng-tao, the head of the Taiwan Institute of Economic Research (TIER), explained that the central bank is unlikely to prioritize measures aimed at stabilizing consumer price fluctuations in the immediate future. Instead, the central bank is expected to focus on the economic uncertainties stemming from the potential escalation of the U.S.-China trade war.
After taking office, President Trump imposed tariffs on imports from China, Canada, and Mexico and threatened to introduce “reciprocal tariffs” without exceptions. Additionally, Taiwan has been mentioned in Trump’s rhetoric, particularly regarding the semiconductor industry, with claims that Taiwan has “stolen” the U.S. chip business. These developments suggest that Taiwan could face tariff pressures on semiconductors, further adding to the uncertainty.
In December 2024, the central bank decided to leave its key interest rates unchanged for the third consecutive quarter, keeping the discount rate at 2 percent, the highest in 15 years. The central bank’s decision to maintain monetary policy flexibility is seen as a measure to better navigate potential future volatility in global financial markets, especially in light of the anticipated impacts of Trump’s tariff policies.
Wu Meng-tao noted that while the central bank does not foresee any immediate need to alter rates, it must be prepared for the effects of global economic tensions. If the tariff war escalates and leads to retaliatory measures by other countries, Taiwan could face significant repercussions, particularly in its trade relations with the U.S.
Several major financial institutions have predicted that Taiwan’s consumer price index (CPI) will grow by less than 2 percent this year, which is below the central bank’s alert threshold. The country’s GDP is also forecast to grow around 3 percent in 2025. With these projections, economists suggest that there is little need for the central bank to cut interest rates at this stage.
However, a potential hike in electricity rates by Taiwan Power Co. (Taipower), due to its financial struggles, could lead to inflationary pressures in the domestic market. Wu Meng-tao emphasized that if Taipower raises electricity rates, it would add pressure for the central bank to raise interest rates. But other factors, such as the global impact of the trade war and reduced commodity prices, could offset the domestic inflationary effects from higher energy costs.
Dachrahn Wu, Director of the Research Center for Taiwan Economic Development at National Central University, agreed with Wu Meng-tao’s assessment, stating that while Taipower’s electricity rate hike might increase inflation, the global economic slowdown triggered by tariffs could mitigate these domestic inflationary pressures. As a result, he expects the central bank to focus on supporting economic growth rather than curbing inflation at this juncture.
In conclusion, Taiwan’s central bank is expected to keep its interest rates unchanged in the face of growing global economic uncertainties, including the potential fallout from President Trump’s tariff policies. The priority for the central bank is likely to be managing the risks of external economic volatility, rather than focusing on inflation at this point.
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