Taiwan central bank: We hope Taiwan companies, foreign investors can help maintain forex market stability

Taiwan central bank: We hope Taiwan companies, foreign investors can help maintain forex market stability

The Taiwan Central Bank has maintained its key interest rate at 2% during its latest quarterly board meeting, marking the fifth consecutive hold. This decision comes amidst a robust economic performance, driven by strong exports and a resilient tech sector, and is aimed at managing inflation and exchange rate fluctuations [1].

The Central Bank's decision was widely anticipated, with a Reuters survey of economists forecasting no change in the policy rate through the first quarter of 2026, and a potential reduction to 1.875% thereafter. The bank's focus has been on inflation, exchange rate fluctuations, and the housing market. While domestic inflation has eased, geopolitical tensions, such as Israeli attacks on Iran, have raised global price pressures [1].

The exchange rate remains a key concern, with the Taiwan dollar's appreciation driven by strong trade performance and demand for AI-related products. This has led to substantial US dollar holdings by Taiwanese exporters, causing upward pressure on the Taiwan dollar. Taishin Holdings Chief Economist Li Chen-yu noted that while the appreciation could boost market stability, excessive appreciation could undermine it and cause foreign exchange losses for life insurers [1].

The housing market also poses a challenge. Since September 2024, the Central Bank has implemented selective credit controls to cool real estate activity, but recent calls from property developers for easing these measures highlight the delicate policy dilemma. While credit restrictions may increase bad debt risk, loosening them too soon could reignite speculative behavior [1].

Speculation about a possible preemptive rate cut ahead of the expiration of the temporary US tariff suspension in early July has arisen, but the Central Bank and analysts suggest such a move is unlikely. The Oxford Economics report echoed this cautious stance, suggesting the Central Bank will maintain its current policy through early July [1].

The Central Bank has called on Taiwan companies and foreign investors to help maintain forex market stability. With the Taiwan dollar's appreciation and the potential impact of US tariffs, maintaining market stability is crucial for the economy's resilience. The bank's decision to hold interest rates and its focus on inflation, exchange rates, and the housing market reflect its commitment to balancing economic growth and stability [1].

References:
[1] https://www.taiwannews.com.tw/news/6135302