Taipei:Taiwan's inflation rates remain under control, yet potential challenges loom if government subsidies for Taiwan Power Co. (Taipower) and CPC Corp., Taiwan are withdrawn amid rising global oil prices, Central Bank Governor Yang Chin-long stated.
According to Focus Taiwan, Yang addressed the Legislative Yuan's Finance Committee, highlighting concerns about inflationary pressures should energy subsidies cease. The nation's consumer price index (CPI) has surpassed the government's 2 percent inflation threshold for five consecutive months through September, raising questions about potential interest rate adjustments.
Yang outlined that Taiwan's CPI is projected to rise by 2.03 percent in 2026 before easing to 1.83 percent in 2027, with domestic and international forecasts indicating average inflation of 2.04 percent for this year and 1.89 percent for next year. Despite recent CPI growth above 2 percent, the central bank views inflation as manageable, anticipating that global energy prices will moderate, allowing inflation to fall below 2 percent next year.
Yang emphasized that higher oil prices are a supply-side driver of inflation. He argued that stabilizing electricity and fuel prices is more effective than interest rate hikes, which have broader economic impacts yet do little to curb supply-driven inflation. The central bank will monitor domestic prices and economic conditions closely before considering rate changes.
Regarding budget allocations for Taipower and CPC, Yang suggested that inflation would remain manageable if energy price stabilization measures continue. However, inflation could rise further if both budget support and energy subsidies are withdrawn while global oil prices increase.
Yang dismissed concerns of a liquidity crunch, noting that domestic banks maintain an average liquidity coverage ratio of about 120 percent, well above the regulatory minimum. He attributed the Taiwan dollar's recent weakness to foreign investors repatriating profits from local equities, not U.S. dollar strength, and reaffirmed the central bank's commitment to managing the foreign exchange market without defending a specific exchange rate.
