TAIPEI (Taiwan News) — Taiwan’s Central Bank is widely expected to keep its key interest rate steady at 2% during its upcoming quarterly board meeting on Thursday, marking the fifth consecutive hold.

Interest rate adjustments remain a crucial tool of monetary policy. Raising rates helps contain inflation and curb excessive investment in assets such as real estate and equities, while lowering rates can stimulate domestic consumption and boost export competitiveness during economic slowdowns, according to Standard Chartered.

Analysts anticipate the upcoming meeting will focus on three main issues: inflation, exchange rate fluctuations, and the housing market. Although domestic inflation has eased, ongoing geopolitical tensions have raised concerns about a possible return of global price pressures, according to CNA.

A recent Reuters survey of 30 economists found that 29 expect no change in the policy rate. Respondents also forecast the rate will remain unchanged through the first quarter of 2026, with a potential reduction to 1.875% thereafter.

Taiwan’s economy continues to demonstrate robust growth, supported by a record-breaking NT$1.5 trillion (US$51.7 billion) in exports in May. This rise, driven primarily by global demand for technology and artificial intelligence-related products, has led Taiwanese exporters to accumulate substantial US dollar holdings.

The subsequent conversion has driven upward pressure on the Taiwan dollar. Taishin Holdings Chief Economist Li Chen-yu (李鎮宇) noted that the Taiwan dollar’s rapid appreciation in May, coupled with a weakening US dollar, could destabilize markets and cause foreign exchange losses for life insurers.

The exchange rate is likely to remain a key focus. Li warned that excessive appreciation could undermine market stability.

Inflation, while easing, continues to be a concern. Taiwan’s Directorate-General of Budget, Accounting and Statistics reported that the Consumer Price Index rose 1.55% year-on-year in May, marking its lowest increase in over four years, with expectations for inflation to remain below 2% in the second half of the year.

However, Li pointed out that recent geopolitical tensions—specifically Israeli attacks on Iran—have already pushed oil prices higher, which could reignite inflationary pressures globally and in Taiwan, a country that heavily relies on energy imports and is vulnerable to international oil price fluctuations.

The housing market remains another concern for the Central Bank. Since September 2024, the bank has implemented selective credit controls to cool real estate activity.

However, property developers have recently called for easing these measures. Li described the situation as a delicate policy dilemma: as credit restrictions persist, the risk of bad debt may increase, but loosening them too soon could reignite speculative behavior.

Taiwan’s export-driven economy, buoyed by the tech sector’s strength, continues to shape monetary policy decisions. The persistent appreciation of the Taiwan dollar, fueled by strong trade performance and demand for AI-related products, remains a critical consideration.

Speculation has arisen about a possible preemptive rate cut ahead of the expiration of the temporary US tariff suspension in early July. However, Li believes such a move is unlikely.

An Oxford Economics report echoed this cautious stance, suggesting the Central Bank will maintain its current policy through early July.