The central bank is expected to keep its key interest rates unchanged for the sixth consecutive quarter at a policymaking meeting scheduled for Thursday next week, as uncertainties stemming from US tariff policies persist despite a strong likelihood of a rate cut by the US Federal Reserve this month, economists said.
Cathay United Bank Co (國泰世華銀行) chief economist Lin Chi-chao (林啟超) said that the central bank needs more time to assess how Taiwan’s exports would perform following the US’ “reciprocal” tariffs — which took effect on Aug. 7 and include a 20 percent levy on Taiwanese goods — before deciding on monetary policy.
The central bank is likely to wait until December, when more economic data is available, before considering an adjustment to rates, Lin said.
Photo: Ann Wang, Reuters
In June, the central bank left its policy rate unchanged, with the local discount rate holding at 2 percent — the highest in 15 years.
While US tariffs have weighed on some traditional industries, Taiwan’s technology sector has remained resilient, continuing to expand capital spending to meet global demand, Lin said.
That prompted the Directorate-General of Budget, Accounting and Statistics to raise its GDP growth forecast for this year to 4.45 percent from 3.10 percent, he said.
“It is hard for the central bank to follow the Fed and cut interest rates now,” Lin said. “The bank needs more economic data to evaluate when to begin a preventive rate-cut cycle.”
Agreeing with Lin, Wu Meng-tao (吳孟道), director of the sixth research division at the Taiwan Institute of Economic Research (台灣經濟研究院), said he does not expect the central bank to ease monetary policy until the first quarter of next year.
Wu added that a Section 232 investigation launched by Washington in April under the US Trade Expansion Act of 1962 could pave the way for tariffs on semiconductors.
Even if Taiwan Semiconductor Manufacturing Co (台積電) and other industry heavyweights with US investments secure exemptions, many smaller firms in the supply chain might not, he said.
“If the central bank cuts interest rates now, it will have fewer tools later to mitigate the impact of potential semiconductor tariffs,” he said.
Meanwhile, market observers said it would be worth watching how the central bank responds to the government’s move to ease rules on the “mortgage program 2.0” for young first-time homebuyers, which was launched in August 2023.
Last week, the Cabinet announced that mortgages under the subsidy program would be excluded from restrictions under the Banking Act (銀行法), which caps the total value of loans extended for residential and commercial construction at 30 percent of a bank’s total deposits and issued debentures.
The eased rules would allow banks to extend more mortgages to young borrowers, supporting the housing market and pushing up home prices.
In September last year, the central bank imposed a seventh round of selective credit controls, which property dealers described as the strictest in history, further capping homebuyer mortgage levels in an effort to rein in soaring housing prices.
However, Lin said the credit controls have so far proven effective, while the central bank also needs time to assess the impact of the relaxed mortgage rules.
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