Central Bank Meeting Minutes Signal Rate Hike? Two Board Members Rarely Sound Hawkish Amid Inflation Warnings

The Central Bank of Taiwan has just released the summary of the minutes from its second-quarter board meeting on monetary policy. Notably, two board members have rarely and clearly stated that 'interest rates should not remain on hold, as this is a good time to raise them' and 'this is an excellent opportunity to raise interest rates and normalize monetary policy.' Overall, while many board members believe domestic industrial development is diverging and monetary policy must be carefully balanced, hawkish voices advocating rate hikes are gaining momentum, potentially placing the central bank in a difficult position on whether to initiate a rate hike at its third-quarter board meeting.

The meeting minutes reveal that many board members recognize Taiwan's strong economic growth momentum, but it is primarily concentrated in AI-related industries, while other sectors are performing relatively weakly, resulting in a divergent industrial landscape. This has led to support for keeping the policy interest rate unchanged.

One board member pointed out that although Taiwan currently faces upward price pressures, maintaining the policy rate unchanged preserves policy flexibility and room to respond to future uncertainties.

Another board member argued that there is currently no compelling reason to adjust the policy rate, as inflation remains highly uncertain and its future trajectory will require more time to confirm.

However, one board member clearly adopted a hawkish stance, asserting that the central bank should no longer remain passive and that now is a good time to raise rates. Given that leading indicators for core inflation have already shown an upward trend, and considering the lag effect of monetary policy, the economy is now facing inflationary pressures. Raising rates at this moment could be more effective in curbing inflation expectations.

Another board member also believes that now is an ideal time to raise interest rates to normalize monetary policy. Analyzing the factors driving inflation in Taiwan, demand-side factors are expected to expand further, while supply-side constraints are also intensifying, posing future risks for price increases. The outlook for consumer price inflation is not optimistic.

In particular, as inflation rises again, Taiwan's one-year fixed deposit real interest rate has turned negative, indicating that the policy rate is overly accommodative.

Nonetheless, some board members hold a more neutral stance, emphasizing that with the economy developing unevenly, monetary policy must be even more carefully balanced. Many members expressed concern that while AI is driving high economic growth in Taiwan, disparities in industrial development and income distribution mean that low-income groups are unable to fully benefit. If rates are raised now, low-income households would face greater financial pressure.