Taiwan’s central bank is expected to hold interest rates steady during its upcoming quarterly policymaking meeting on March 20, 2025, according to Central Bank Governor Yang Chin-long (楊金龍). Speaking at the Legislative Yuan’s Finance Committee, Yang dismissed the possibility of an immediate rate cut, citing inflation risks and Taiwan’s strong economic growth momentum.
No Rate Cuts Unless Inflation Falls Below 1.5%
Governor Yang emphasized that the Central Bank of the Republic of China (Taiwan) follows a policy of considering interest rate cuts only when the Consumer Price Index (CPI) drops below 1.5%. However, inflation in Taiwan remains above this threshold, fueled by higher Taiwan Railway Corp. fares and upcoming electricity rate hikes.
- Taiwan’s inflation is projected to exceed 2% in the coming months, making a rate cut unlikely.
- The central bank’s priority is maintaining economic stability rather than making premature adjustments to interest rates.
- Interest rate decisions will continue to be based on a combination of inflation trends, economic growth, and global financial conditions.
Concerns Over U.S. Currency Manipulation Watchlist
During the legislative session, lawmakers questioned Yang about Taiwan potentially being labeled a “currency manipulator” by the U.S. Treasury Department in its forthcoming report on global currency practices. The report evaluates economies based on three key criteria:
- A trade surplus with the U.S. exceeding US$15 billion.
- A current account surplus greater than 3% of GDP.
- Frequent intervention in foreign exchange markets (at least eight months of net purchases totaling 2% of GDP).
Taiwan regularly meets the first two criteria due to the structure of its export-driven economy. However, Yang reassured lawmakers that Taiwan does not manipulate its currency and maintains transparent communication with the U.S. Treasury Department.
- Even if Taiwan remains on the U.S. currency watchlist, it is unlikely to face serious economic consequences.
- Taiwan’s central bank intervenes in the foreign exchange market only to stabilize the economy, not to gain an unfair trade advantage.
U.S. Tariffs Unlikely to Harm Taiwan’s Economy
Yang also addressed concerns regarding U.S. presidential candidate Donald Trump’s proposal for reciprocal tariffs—a policy that could see the U.S. impose higher tariffs on imports from countries that levy higher duties on American goods.
However, Yang pointed out that Taiwan’s tariffs on U.S. goods are already lower than U.S. tariffs on Taiwanese exports, according to World Bank data. As a result, if Trump implements his reciprocal tariff policy, Taiwan’s exports are unlikely to suffer significant harm.
- The current trade balance between Taiwan and the U.S. suggests limited risk from any tariff adjustments.
- Taiwan’s economic strength and trade agreements provide protection against unilateral tariff hikes.
- Taiwan will continue to monitor U.S. trade policies and negotiate to safeguard its exports.
Looking Ahead: Taiwan’s Monetary Policy Strategy
As Taiwan’s economic landscape continues to evolve, the central bank is expected to maintain a cautious approach to monetary policy.
- No immediate rate cuts are expected unless inflation falls below 1.5%.
- Taiwan will continue to manage its foreign exchange reserves carefully to avoid accusations of currency manipulation.
- Potential U.S. trade policy changes will be monitored, but Taiwan’s export sector remains resilient.
The March 20 policy meeting will provide more clarity on the central bank’s stance on interest rates, foreign exchange management, and Taiwan’s overall economic outlook.
FAQs
Why is Taiwan’s central bank unlikely to cut interest rates?
Taiwan’s central bank follows a policy of considering rate cuts only if inflation (CPI) falls below 1.5%. With inflation projected to exceed 2%, a rate cut is not expected in the upcoming March 20 meeting.
How does inflation impact Taiwan’s interest rate policy?
Higher inflation reduces the purchasing power of consumers and businesses, making it less favorable for the central bank to lower interest rates. Taiwan’s rising electricity prices and railway fare hikes are driving inflation above 2%, limiting the likelihood of a rate cut.
Could Taiwan be labeled as a currency manipulator by the U.S.?
Taiwan meets two of the three U.S. Treasury criteria for currency manipulation, but the central bank argues that it does not engage in unfair currency practices. Taiwan also maintains open communication with the U.S. Treasury, reducing the likelihood of facing penalties.
Will U.S. reciprocal tariffs impact Taiwan’s economy?
No, Taiwan’s tariff rates on U.S. goods are already lower than U.S. tariffs on Taiwanese exports. If Donald Trump reintroduces reciprocal tariffs, Taiwan’s trade with the U.S. is unlikely to be severely affected.
When will Taiwan’s central bank consider an interest rate cut?
The central bank will only consider cutting interest rates if CPI inflation falls below 1.5%. If inflation remains high, interest rates are expected to stay unchanged.
