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Taiwan Monetary Policy December 2023

Taiwan: Central Bank keeps rates on hold in December

At its monetary policy meeting on 14 December, the Board of Directors of Taiwan’s Central Bank (CBC) left the policy rate at 1.875% for the third straight meeting. The CBC hiked interest rates 75 basis points from early 2022 to early 2023, a much milder tightening cycle than that of most other countries.

Contained price pressures meant that further rate hikes were not warranted: Both headline and core inflation have averaged at 2–3% since the Bank’s last meeting in September, lower than the rates in most other advanced economies. That said, price pressures are still high by historical standards—headline inflation averaged just 1% in the decade to 2022—meaning that rate cuts were not yet justified.

The Bank gave no explicit forward guidance. Some of our panelists see the CBC cutting rates next year while others see rates unchanged until 2025 or beyond. The Consensus is for only a mild decline in the policy rate by end-2024. Much could depend on the pace of rate cuts by major central banks, particularly the Fed: Faster rate cuts abroad would provide more scope for easing at home.

On the outlook, Goldman Sachs analysts said:

“Given the Fed pivot in the December FOMC as highlighted by our US team and related changes in our Fed rate forecasts to an earlier and faster cuts […] we bring forward the timing of the CBC’s first 12.5bp cut to Q2 from Q4 previously. We keep the pace of cuts unchanged at 12.5bp per quarter to 1.375% by Q1 2025, with expectation of total cumulative cuts during the easing cycle also unchanged at 50bp.”

In contrast, United Overseas Bank’s Ho Woei Chen takes a different view:

“Taiwan’s interest rates have been much more stable during the Fed’s hiking cycle that started in Mar 2022, rising only 75 bps vs. Fed’s 525 bps increase. As such, CBC’s rate decision will be data-dependent, and we reiterate our call for an extended rate pause in Taiwan at 1.875% through to end-2024.”

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