Taipei - Minutes released from the central bank's most recent board meeting show members generally confident about Taiwan's economic trajectory but cautious about several market-side risks.
At its December meeting the central bank left the benchmark discount rate unchanged at 2% in a unanimous decision - a level it has held since March 2024. The minutes note that the bank raised its economic growth forecast for 2025, attributing the upgrade to surging exports of technology goods to the United States.
Board members highlighted Taiwan's central role in producing advanced semiconductors that underpin recent advances in artificial intelligence. That dynamic coincided with a 26% gain in the island's benchmark stock index in 2025, according to the minutes. Several members said sustained AI-related demand should support solid economic growth into 2026.
Despite the upbeat growth outlook, the minutes record reservations from multiple members about potential financial-stability implications. One member, unnamed in the minutes like the rest, described the probability of an AI bubble as low but said "ongoing monitoring is warranted" to track developments linked to rapid technology adoption and market valuation shifts.
Another board member drew attention to the rising market capitalisation of Taiwan's stock market and marked increases in assets held in Exchange-Traded Funds. The member cautioned that those trends, together with frequent foreign capital flows, "could exacerbate volatility in domestic financial and foreign exchange markets and thus warrant close attention."
A further board member noted that foreign institutional investors have continued to expand their holdings of Taiwanese equities. The minutes quote that even a partial selloff by these investors "could intensify downward pressure on the Taiwan dollar exchange rate."
The central bank's board comprises 15 members and the institution carries a mandate to maintain a stable exchange rate. The minutes state the bank will hold its next quarterly rate-setting meeting in March. Separately, the government is scheduled to publish a preliminary reading of fourth-quarter and full-year 2025 economic growth on Friday, the minutes say.
Context and implications
- Policy stance: The decision to keep the discount rate at 2% was unanimous, reflecting a shared preference for steady policy given current conditions.
- Growth drivers: Upgraded growth expectations for 2025 are linked explicitly to stronger tech exports, particularly those serving AI applications.
- Financial stability concerns: While growth prospects are positive, board members emphasised the need to watch equity valuations, ETF expansion and foreign capital flows for risks to market and currency stability.
Next steps
The central bank will reconvene for its quarterly decision in March. In the near term, observers will watch the government's preliminary GDP figures for fourth-quarter and full-year 2025 to see whether the data align with the upgraded forecast cited in the minutes.