Taiwan Money (ann. var. of M2 %)

Money in Taiwan

Central Bank hikes rates in March

At its monetary policy meeting on 23 March, the Board of Directors of Taiwan’s Central Bank (CBC) increased the policy rate from 1.750% to 1.875%.

The move aimed to tame inflation and inflation expectations. While inflation has eased since mid-2022, it is still elevated by historical standards. Moreover, the CBC upgraded its forecasts for core and headline inflation, and now expects both to average above 2% this year. The Bank appeared confident that the economy would gain steam in H2 thanks to strong private consumption and an export rebound, providing the leeway to continue hiking.

Looking ahead, most panelists see rates unchanged for the remainder of this year given that inflation should drop off ahead, although two panelists see a hike to 2.000%.

United Overseas Bank’s Ho Woei Chen said:

“Given the increased growth risks and expected slowdown in the inflation trajectory, there is little impetus for CBC to hike interest rates further. We reiterate our call for the central bank to be on an extended pause at 1.875%.”

In contrast, Goldman Sachs’ analysts see more tightening:

“CBC Governor Yang kept a slightly hawkish stance during the press conference, in our view […] We maintain our view that CBC will deliver one more 12.5bp hike in Q2 to a peak rate of 2.00%, under our baseline view of a further two more 25bp hikes by the Fed to a peak rate of 5.25-5.5%.”