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Projected Taiwan interest rate in 5 years: Models point to decline as Republic of China central bank tightens

By Ryan Hogg

Edited by Georgy Istigechev

15:13, 7 October 2022

The Sun Yat-sen's head portrait in New Taiwan Dollar 100 Yuan banknotes
Taiwan raised its key discount rate to 1.625% in September 2022 – Photo: Chintung Lee /

Taiwan has been spared the worst of the economic pain that has gripped most of the world in 2022, with inflation relatively low despite obvious pressures.

But with uncertainty on the horizon, how are long term interest rates expected to trend in the country, and what is the projected Taiwan interest rate in five years?

What is the Central Bank of the Republic of China?

The Central Bank of the Republic of China (Taiwan) is the central bank in charge of carrying out monetary policy in Taiwan. 

The bank has its roots in the Central Bank of China, founded in 1923. The central bank initially operated as the Bank of Taiwan in 1897, under Japanese colonial rule. It was promulgated under the Central Bank of China Act in 1979. 

The bank meets on a quarterly basis to decide interest rates and explore other mechanisms, like quantitative easing.

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Taiwan's central bank monetary policy over the years

Interest rates in Taiwan have enjoyed relative stability over the last decade, in line with a consistently growing global economy and domestic prosperity.

Rates fell dramatically at the start of the century to a low of 1.38% in June 2003, before gradually building to a peak of 3.63% in June 2008. 

The global financial crisis of 2007-08 caused another steep correction by the central bank, when it cut rates to 1.25% by February 2009 to ease the strain on investors and consumers, before settling at 1.88% over a four-year period from 2011. 

Taiwan Interest Rate 2012-2022

The bank then moved to lower rates further to inspire growth, before making another cut in the face of the Covid-19 pandemic as banks across the world moved to reign in markets.

The Taiwan bank rate is back on an upward trajectory, as of 7 October, with threats of endemic inflation making central banks jittery.

While Taiwan is more shielded from these effects, its central bank is raising rates, with the country’s benchmark rate back to levels last seen in 2016. 

Key factors and latest news

Unlike soaring price rises gripping the West, Taiwan has largely avoided spiralling inflation.

The country’s consumer prices index (CPI) rose by 2.75% in September, cooling down from a June high of 3.59% but up slightly from August's 2.66%, according to Taiwan’s National Statistics agency.

Core CPI, which excludes food and energy and arguably offers a better picture of embedded inflation, was higher at 2.79% and on a more upward trajectory.  

“Looking ahead to next year, global supply chain bottlenecks would likely be gradually alleviated and international institutions mostly anticipate a price downtrend for crude oil and other raw materials,” the Bank of Taiwan said in its last monetary policy statement, where it projected CPI to drop to 1.88% in 2023.

Most institutions expect Taiwan to keep inflation under 2% next year, though Barclays Capital gave the highest outlook of 2.4% for 2023.

A forecast from Dutch bank ING Group indicates that price rises could be a bit more temperamental in the country over the next few years. Inflation is expected to stabilise in 2023 around 1.9%, before jumping to 3% in the middle of 2024. That could put pressure on the central bank.

In addition to inflation, the central bank looks to the labour market as another measure of heat in the economy. High employment puts upward pressure on wages and is a sign of increased spending power, both driving underlying prices.

Seasonally adjusted unemployment fell to 3.68% in July 2022, from 4.36% a year earlier, while employment rose by 0.22%, according to industry website SIA. The increases suggest some heat in the labour market, but not enough to leave the bank worried, particularly as employment continues to lag behind levels seen in April, when fresh Covid-19 concerns triggered further lockdowns.

“Looking ahead to next year, employment and wage growth are likely to benefit from the recovery in domestically-oriented services sector [sic], helping to extend the uptrend in private consumption,” the bank said. 

There is also an expectation the economic growth will begin to cool in the country, putting less pressure on interest rates to rise. 


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The Yuanis-Polaris Research Institute, a leading Taiwanese think tank, cut its Taiwan economy forecast for 2023 GDP from 3.4% to 3.08%. 

Taiwan’s Directorate General of Budget, Accounting and Statistics carried a similar projection for GDP of 3.05% in 2023. 

These are both a steep climb down from 6.57% in 2021, as well as a slight drop on projected 2022 growth of 3.76%. The central bank is more pessimistic, with a GDP growth projection for 2023 of 2.9%.

In the long run, Taiwan’s economic growth is expected to continue at a faster rate, with Statista reporting predicted GDP per capita growth of 6.1% between 2021 and 2026. That rate of growth could force an uptick in the projected Taiwan interest rate in five years.

While Taiwan is in no rush to accelerate interest rate rises in this environment, it has been forced to consider actions by the US Federal Reserve (Fed), where hikes have been increasingly aggressive as the Fed turns hawkish in the face of decades-high inflation. 

The dollar has strengthened as the Fed has hiked rates, inspiring a “reverse currency war” in which central banks are following suit to avoid their currencies being devalued.

So, the Central Bank of China (Taiwan) is proceeding on a schedule of modest interest rate rises.

Last month, the bank increased rates for the third time this year, bringing in a 12.5 basis point (bps) rise to hit 1.625% – a mild move compared to 75bp increases registered in the US and the eurozone recently. 

The Bank wrote:

“Against a backdrop of elevated inflationary pressures and intensified headwinds facing the global economy, the Bank will closely monitor the implications for domestic price trends brought forth by international raw material price movements, geopolitical risks, extreme weather events, and the course of the pandemic worldwide, while also paying close attention to the trajectory of monetary policy tightening in major economies and the effects therefrom on economic and financial conditions at home and abroad.”

An anonymous source from the bank told Reuters in July that “timely” adjustments would be made to policy as it watches global economic developments, while another said the bank would focus on domestic indicators like inflation, consumer spending, exports and joblessness.

The country is a major exporter of semiconductors used for cars and smartphones in the West through the Taiwan Semiconductor Manufacturing Company (TSM).

“Taiwan's economy is supported by solid high-tech exports despite temporary headwinds from the surge in local Covid-19 cases since April 2022,” said ratings body Fitch in July 2022. “Exports, combined with prudent regulatory oversight and the banks' steady risk profiles, should support sound asset quality.”

BoC's rates in 5 years: Long-term interest rate forecasts

It is difficult to hone in on an outlook for projected Taiwan interest rates in five years. That could largely depend on the trajectory of the global economy, particularly the length of time inflation is regarded as being endemic. 

In the medium term, most institutions expect rates to stabilise.

Fitch Ratings’ Taiwan interest rate forecast from June projected rates to increase by 62.5bps in 2022 and 25bps in 2023, from 1.125% in 2021. 

According to TradingEconomics econometric forecasting model, rates are expected to average 1.7% in 2023 before falling to 1.2% in 2024.

There are other long term pressures that could influence the bank’s interest rates. The country is expected to have more than 20% of its population over the age of 65, indicating a high dependency ratio in the country.

That could have an impact on interest rates, with a 2016 study by the Federal Reserve Bank of San Francisco suggesting that retirees saving less than workers could lower the aggregate savings rate and push real interest rates up.

ING has tracked a path for Taiwan bank interest rates through to the end of 2024.

The lender expects rates to peak at 1.8% in the second and third quarter of 2023, before falling to 1.44% by Q4 2024.

Note that analysts, financial institutions and algorithm-based forecast websites can and do get their forecasts and predictions wrong. Always do your own research before making a trading or investment decision. And never invest more than you can afford to lose.


What are interest rates in Taiwan?

Interest rates in Taiwan are currently (7 October) at 1.625% following three modest rate increases this year.

Does Taiwan have an inflation target?

Taiwan, like most central banks, has an inflation target of 2%, indicating slow and stable increases in prices to encourage economic growth.

Will interest rates go up in Taiwan?

Analysts and algorithm-based forecasting websites cited by this article expected interest rates in Taiwan to rise over the next year, before falling slightly, though Dutch bank ING expects volatility in 2024.

Remember that analysts, financial institutions and algorithm-based forecast websites can and do get their forecasts and predictions wrong. Always do your own research before making a trading or investment decision. And never invest more than you can afford to lose.

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