Oil Prices and Weaker Taiwan Dollar Stoke Inflation, Fuel Second-Half Rate-Hike Expectations

Tensions in the Middle East have pushed up global oil prices, while the New Taiwan dollar has weakened past NT$32 against the U.S. dollar. The resulting rise in energy and import costs has renewed concern over inflation risks in Taiwan. An AI-driven surge in exports and economic growth has also complicated the Central Bank of the Republic of China’s trade-off between containing prices and sustaining the economy.

Interest-rate swap data show that markets are pricing in the possibility of a central bank rate increase within the next 12 months. The central bank may still leave its policy rate unchanged in the near term and is scheduled to release its latest consumer price index forecast in June. If pressure from oil prices and the exchange rate persists, it would have room to tighten policy further in the second half of the year.