DBS Bank’s Group Research predicts that Taiwan’s central bank will keep the policy rate unchanged at 2.00% until 2026. Inflation is expected to stay below the 1.5–2.0% comfort zone, indicating stable economic conditions with low price pressures.
The central bank may start to scale back liquidity support as Taiwan’s economic growth exceeds expectations. Without inflationary pressure, there are no immediate plans to increase the rate.
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Given the expectation for the central bank to keep its policy rate at 2.00%, we believe interest rate volatility will remain low. This stability suggests that near-term interest rate swaps and forward agreements should be priced with a very low probability of any rate change. Traders should consider positions that benefit from this anticipated calm in the rates market.
This view is supported by recent statistics from the end of 2025, which showed December’s consumer price index holding steady at a manageable 1.48%. Coupled with robust fourth-quarter 2025 GDP growth of 3.6%, driven by strong electronics exports, the central bank has no urgent reason to adjust its policy. We see this data as confirmation that the current rate is appropriate for the economic conditions.
Currency Derivatives And Market Strategy
For traders focused on currency derivatives, this policy stance points to a more range-bound USD/TWD pair in the coming weeks. We observed the pair moving within a predictable channel for much of the second half of 2025, and this environment may persist. Strategies that profit from low volatility, such as selling short-dated currency options, could be favorable.
While the main policy rate is expected to be anchored, we must pay attention to the gradual withdrawal of liquidity support measures. This represents a subtle form of monetary tightening that could offer underlying support for the Taiwan dollar. Any official communication that accelerates this unwinding could be a signal for modest currency strength.
The significant interest rate differential compared to other major economies, like the United States where rates ended 2025 at 4.50%, will continue to influence capital flows. This gap may discourage overly aggressive bullish bets on the Taiwan dollar. We anticipate that any strength in the local currency will likely be tempered by this ongoing carry trade dynamic.
