The Central Bank of China (中央銀行) will meet today to consider a hike in the benchmark rate, two days after the US Federal Reserve lifted its rate by 25 basis points.
Analysts, however, believe a 25 basis point rise to 4.75 percent is unlikely, because Taiwan's economy is not overheating and therefore doesn't need the change.
"Local monetary conditions don't support a rate increase," said Naiwen Kerr, assistant vice president of Taiwan International Securities. "The capital market is not overheating ... We don't think there is a need."
The central bank, like its US counterpart, would likely raise interest rates if it thinks inflation is getting out of hand, said Neal Stovicek, head of equity research at National Securities Corp.
After its monthly meeting in February, the central bank said a rate hike was possible in light of the stock market's bullishness and the appreciation of the New Taiwan dollar.
But the capital and foreign exchange markets have cooled since then, with the TAIEX losing 11.1 percent of its value after reaching a 52-week closing high of 10,202.20 on Feb. 17.
The New Taiwan dollar has eased 0.3 percent since Feb 8.
Stovicek noted that climbs in the consumer price index may prompt central bank action.
Last month, the CPI climbed 1.42 percent over the previous month, according to the Directorate General of Budget, Accounting and Statistics (主計處). Inflation was up 0.87 percent year-on-year, largely because of higher medical fees and oil prices.
Stovicek held out the possibility of a rate increase because of inflationary concerns.
"[The Bank's] objective, and sole objective, is to maintain price stability," Stovicek said. "There are signs that [inflation] is starting to pick up, and that would be a cause" for an increase, he said.
Should the central bank by chance hike rates today, Stovicek said such an increase would have little impact on the country's high-growth, high-tech companies because interest rates are relatively low in Taiwan compared to the rest of the world.
"In general, a 25-basis point hike would have little impact on `new economy' stocks," he said. "It would have more of an impact on struggling, `old economy' stocks," such as construction and real estate shares.
Because of the super-charged earnings growth of high-tech companies, Stovicek said, "They're able to achieve higher returns on invested capital."
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