Taiwan Stock Market (ann. var. of TAIEX %)

Central Bank hikes rates in December

At its monetary policy meeting on 15 December, the Board of Directors of Taiwan’s Central Bank (CBC) increased the policy rate from 1.625% to 1.750% taking total tightening in 2022 to 62.5 basis points.

The move aimed to tame inflation and inflation expectations. While inflation has eased since mid-2022, it is still elevated by historical standards at over 2%.

Looking ahead, the Consensus is for rates to rise only marginally going forward. This dovish stance will be supported by muted price pressures relative to other developed economies, and a projected decline in inflation in 2023 to below 2%. There is a slight divergence in analysts’ views: around half see no further monetary tightening, while the other half see one or two more rate hikes in H1 2023.

EIU are among the analysts which see no further rate hikes:

“Given Taiwan’s worsening export outlook—which we expect to dampen domestic investment, private consumption and job growth in early 2023—we maintain our existing assumptions that the CBC will avoid further interest-rate increases at its next meeting, in March 2023.”

In contrast, Goldman Sachs analysts are at the hawkish end of our panel:

“Given the moderately hawkish stance, we continue to expect the CBC to deliver two more 12.5bp quarterly hikes in Q1 and Q2 of 2023 respectively, to a peak rate of 2.00%.”