Rising core CPI and services inflation prompt expectations of a 12.5 bp CBC rate increase in H2 despite strong AI-driven growth.
Taiwan’s core inflation accelerated to 2.5% in June, exceeding the Central Bank of the Republic of China’s informal 2% threshold. Headline CPI rose to 2.6% year-over-year, the fastest pace since January 2025, driven by higher fuel, gas, and electricity costs, while services inflation remained firm at 2.9%.
The CBC last raised its policy rate by 12.5 basis points to 2% in March 2024 and has held it steady since. Analysts now expect a potential 12.5 bp hike in the second half of 2024, citing persistent inflation pressures and robust domestic demand fueled by AI-led income gains.
Despite strong economic performance, the Taiwan dollar has weakened, with USD/TWD climbing to 32.19. Seasonal dividend outflows have pressured the currency, but a pullback is anticipated once these outflows subside.