Taiwan CBC on Hold as Expected on Benign Inflation Outlook

Economics Research 17 September 2026 | 9:26PM KST

Taiwan: CBC on Hold as Expected on Benign Inflation Outlook

1. Taiwan’s central bank (CBC) kept its benchmark policy rate unchanged at 2.0% at Irene Choi | its September rate decision meeting. The decision was not unanimous, with two Goldman Sachs (Asia) L.L.C., Seoul Branch dissenting votes (out of a 15-member monetary policy board) calling for a policy Goohoon Kwon, CFA rate hike. The outcome was in line with Bloomberg consensus and our forecast. | Goldman Sachs (Asia) L.L.C. 2. In the MPC statement, the central bank noted the continued expansion of the global manufacturing sector, along with strong investment in Artificial Intelligence (AI) and related technologies. International institutions expect global growth to rebound and inflation to decline next year, albeit with uncertainties regarding developments in the Middle East, major central bank policies, the prospects of the AI industry, and potential changes to US trade policies. Major central banks (Europe, Japan, and the US) have raised policy rates. 3. The central bank further raised its 2026 real GDP growth forecast sharply further to 11.48% from 9.45% previously (vs. GS forecast: 11.1% and Bloomberg consensus: 10.0%). The central bank forecasts real GDP growth of 5.8% next year, driven by continued strength in exports and private investment, along with sustained robust growth in private consumption, which is supported by a higher minimum wage and public sector salaries. 4. The central bank raised its 2026 headline CPI inflation forecast marginally to 2.03% (vs. 1.91% previously). The revised forecast is in line with our forecast and Bloomberg consensus of 2.0%. The central bank’s core inflation forecast was also raised, to 2.16% from 1.90% previously. For 2027, the central bank expects headline and core CPI inflation to slow to 1.8% and 1.9%, respectively. 5. On monetary conditions, M2 growth averaged 6.6% through July, relative to the central bank’s reference range of 2.5%–6.5%. Loans and investments by the banking sector increased by 8.2% over the same period, driven by corporate investment and active stock trading. The central bank has conducted open market operations to stabilize liquidity conditions given liquidity demand from rising domestic demand and foreign capital outflows 6. Regarding future rate decisions, the key wording in the statement remained unchanged: the CBC “will adjust its monetary policy accordingly in a timely manner as warranted to fulfill the statutory duties of maintaining financial and price stability, and fostering economic development within the scope of the above objectives”. The central bank added “domestic inflation trends” to the top of its list of factors to monitor, followed by monetary policy adjustments in major economies, the domestic financial situation (also newly added), other

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uncertainties related to the AI industry, the impact of US trade policies, and extreme weather events. 7. The central bank raised the LTV (Loan-to-value) ratio limit for second mortgage loans from 60% to 70%, marking the second increase this year after March. In the central bank’s assessment, housing market transactions have continued to cool down, and speculation has eased. The share of real estate loans in total loans continued to fall from a peak of 37.6% in June 2024 to 34.4% in May. One board member cast a dissenting vote against this decision, consistent with the vote in March. 8. During the press conference, the Governor explained that the two board members who voted for a rate hike at today’s meeting were the same as in the prior meeting, and their reasoning (elevated inflation) was also broadly unchanged. He added that the other board members “strongly” supported the on-hold decision although they also emphasized the need for close monitoring of inflationary pressures. The Governor overall maintained a relatively dovish stance on inflation, in our view. He commented that inflation was expected to stay…