Taiwan Central Bank Holds Rates Again, Raises Inflation Forecast — Update

By Sherry Qin

Taiwan's central bank kept interest rates unchanged for an eighth straight meeting Thursday, while raising its inflation outlook, citing uncertainty stemming from the Middle East conflict.

The energy price shock caused by the fighting has complicated matters for policymakers across the world, sending energy prices soaring and raising the risk of slowing growth and stoking inflation. That leaves central banks wrestling with keeping price growth in check, without putting the brakes on economic activity.

The Central Bank of the Republic of China (Taiwan) on Thursday warned about the impact of higher energy costs, now projecting inflation of 1.80% in 2026, up from its previous forecast of 1.63%.

It opted to leave its benchmark discount rate at 2.000%, in line with the forecasts of all economists surveyed by The Wall Street Journal. The secured and unsecured lending rates stayed at 2.375% and 4.250%, respectively.

Taiwan has some of the tightest monetary-policy settings in Asia, refusing to join its peers in a wave of rate cuts last year. The current geopolitical backdrop could well push out any expectations of easing this year as well. The last time the CBC eased policy settings was back in 2020.

Strong economic growth and steady inflation have given policymakers room to stay on the sidelines, even as others cut rates.

Taiwan's economy expanded at its fastest pace in 15 years in 2025, backed by global demand for chips and electronics and fueled by the rise of artificial intelligence and front-loading before tariffs took effect.

While an AI-led expansion is expected to continue this year, the Middle East conflict poses a risk to the island economy. The AI manufacturing and data center buildout has driven up Taiwan's power needs, increasing its sensitivity to energy price volatility.

The central bank expects the economy to grow 7.28% in 2026, substantially faster than its forecast of 3.67% in December, but comparatively slower than the 8.68% growth marked in 2025.

Taiwan relies heavily on imports of fuel, with about 37% of its liquefied natural gas supply linked to Middle East routes via the Strait of Hormuz, according to Goldman Sachs data. Shipping via the strait has ground to a virtual halt due to the war between U.S.-Israel and Iran.

"The uncertainty created by the conflict may contribute to some steam coming out of the economy but, for now at least, we expect growth to hold up well over the rest of this year and into 2027," said Jason Tuvey, an economist at Capital Economics.

Last week, Taiwan's Ministry of Economic Affairs said it secured enough energy supplies to last through April and that the government will absorb 60% of the increase in crude oil prices resulting from the conflict.

ANZ economists said Taiwan's state-owned energy companies, Taipower and CPC Corp., are likely to absorb much of the price shock for now, limiting the pass-through to inflation and reducing the need for monetary tightening.

"With the balance of risks tilted to inflation now, we no longer expect the CBC to ease but keep the policy rate stable through the rest of 2026," Deutsche Bank economists said ahead of the decision.

Write to Sherry Qin at sherry.qin@wsj.com

(END) Dow Jones Newswires

March 19, 2026 05:34 ET (09:34 GMT)