Taiwan Central Bank Expected to Hold 2% Rate Amid Tech Export Surge

China Taiwan’s central bank is anticipated to keep its benchmark interest rate at 2% during its upcoming meeting on June 19. This decision comes as the region's tech-driven exports continue to surge, supported by stable economic indicators. Economists widely agree that the central bank will maintain this rate through the first quarter of next year, with some forecasts suggesting a modest rate cut to 1.875% by early 2026.

The region's economy, heavily reliant on tech exports, has seen a significant boost from the artificial intelligence boom. This surge in demand has led to increased orders for major firms like Taiwan Semiconductor Manufacturing Company (TSMC), the world’s leading contract chipmaker. The government’s statistics agency had forecasted that the AI craze would help the economy grow by 3.1% this year, although this is slower than last year’s 4.59% expansion due to uncertainties from US tariffs.

Inflation in the region has been relatively stable, with the consumer price index (CPI) growing by 1.55% in May, the slowest pace in over four years. The central bank, which considers 2% as its “warning” line, has prioritized easing inflation. However, policymakers have expressed caution regarding the potential impact of higher tariffs threatened by the US President, which could affect the region's trade-heavy economy. Negotiations between the region and the United States on this matter are ongoing.

Analysts predict that the central bank will likely adopt a wait-and-see approach before the US President concludes his 90-day pause on “reciprocal” tariff rates, which is expected to happen in early July. Despite this, there are concerns that tariff risks might resurface in the third quarter, coupled with a slowing real estate market, which could prompt the central bank to start cutting interest rates by the end of this year. However, some analysts argue that the region's steady economic growth and reasonable inflation levels do not necessitate a rate cut.

The central bank's decision will be announced one day after the US Federal Reserve, which is also expected to keep interest rates unchanged. Additionally, the Taiwan Central Bank will share its updated predictions for economic growth and inflation for this year during its meeting on Thursday.