Taiwan expected to hold interest rate steady as tech exports surge

Taiwan’s central bank is set to maintain its benchmark interest rate at 2%, opting to hold fire on rate cuts this week and through the first quarter of next year. This comes amid a boom in tech-driven exports and stable economic indicators.

This speculation was raised after 29 of 30 economists surveyed highlighted that the bank is expected to keep the rate unchanged at its next quarterly meeting on Thursday, June 19.

All economists who provided extended forecasts project the central bank will maintain its current stance until early 2026, when a modest rate cut to 1.875% is expected.

Trump’s tariff policies threaten Taiwan’s economic growth in the AI boom era

Surging demand driven by the artificial intelligence boom has helped sustain Taiwan’s tech-heavy, export-driven economy, bolstering orders for major firms like Taiwan Semiconductor Manufacturing Company (TSMC), the world’s leading contract chipmaker.

Last month, the government’s statistics agency forecasted that the AI craze would help the economy grow by 3.1% this year. However, this prediction is slower than last year’s, which was a 4.59% expansion due to uncertainty from US tariffs.

Regarding inflation, the country’s consumer price index (CPI) grew by a less-than-expected 1.55% in May, the slowest pace in more than 4 years. The central bank takes 2% as its “warning” line and has prioritized easing inflation.

Meanwhile, Taiwanese policymakers have cautioned on the effects that higher tariffs threatened by US President Donald Trump could have on their economy, which relies heavily on trade. Still, Taiwan and the United States are continuing negotiations on the matter.

Following the uncertainty of Trump’s tariff, a research report from Oxford Economics revealed that the central bank will likely adopt a wait-and-see approach before Trump concludes his 90-day pause on his “reciprocal” tariff rates, which will happen in early July.

However, the report mentioned that since tariff risks might come back in the third quarter and the real estate market keeps slowing down, analysts believe the central bank will start cutting interest rates by the end of this year.

On the other hand, analyst Chiang Kuang-yu from Masterlink Investment Advisory mentioned that Taiwan’s economy is steady and inflation levels are reasonable. Therefore, based on his argument, there is no need to lower interest rates. 

The decision from the country’s central bank will be announced one day after the US Federal Reserve, which is expected to keep interest rates unchanged. 

On Thursday, the Taiwan Central Bank will also share its updated predictions for economic growth and inflation for this year. 

Taiwan engages in ‘friendly’ tariff talks with the US

Taiwan maintains close communication with the United States over tariff talks, the island’s government said on Tuesday, June 3.  

The state, a semiconductor powerhouse with a huge trade surplus with the US, was set to face a 32% US import tax before President Donald Trump suspended all his “reciprocal tariffs” for 90 days in April.

Following the tariffs talks, the Trump administration asked countries to submit their best trade offers by Wednesday, June 4. This is because officials want to speed up discussions with several partners before a five-week self-imposed deadline, as stated in a draft letter to negotiating partners.

It is worth noting that Taiwan and the United States have been in close contact about tariff talks. However, Taiwan’s cabinet commented that they cannot publicly share more details due to an agreement between both sides. 

They assured the public that any advancements would be shared appropriately, but did not provide specifics. 

In May, Taiwan’s government announced that it had finished its first round of meaningful tariff discussions with the United States, noting that the atmosphere was open and friendly. 

As the fate of Taiwan’s traffic talks with the US is unknown, it has sparked hope in the state for a suitable outcome due to the friendly atmosphere.

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