Taipei: Taiwan’s central bank has issued a cautionary statement regarding the ongoing war in the Middle East, highlighting it as a significant risk to the local economy. Despite this, the bank is maintaining a positive outlook on growth driven by advancements in artificial intelligence.

According to Focus Taiwan, the central bank’s recent analysis of global economic trends, released after its latest quarterly policymaking meeting, emphasized the U.S. and Israel’s ongoing conflict with Iran as the primary downside risk affecting both global and domestic economies. The bank warned that prolonged conflict could disrupt the Strait of Hormuz, leading to sustained high global energy prices and increased inflationary pressures both locally and internationally, potentially hindering Taiwan’s economic growth.

The central bank also pointed out that fluctuations in international crude oil prices could influence the monetary policies of major central banks around the world, potentially impacting global fund flows and m
arket movements in stocks and bonds. During Thursday’s meeting, despite leaving key interest rates unchanged for the eighth consecutive quarter, Governor Yang Chin-long expressed a “tightening bias,” indicating a cautious approach toward future monetary policy adjustments.

Speaking with CNA, Cathay United Bank chief economist Lin Chi-chao interpreted Yang’s remarks as a hawkish stance by the central bank. Lin noted that, for now, the situation does not necessitate immediate action from the central bank. However, he highlighted that if the conflict extends into May and escalates, it could prompt an interest rate hike to counter rising inflationary pressures.

In a separate move, the central bank decided to slightly relax selective credit controls by increasing the borrowing limit for second homes to 60 percent of the home’s value, up from 50 percent. Lin suggested this adjustment aims to provide home buyers with greater flexibility in the face of potential geopolitical tensions, which could tighten credit con
ditions and impact the housing market.

Despite these geopolitical risks, the central bank remains optimistic about Taiwan’s economic prospects, citing robust global demand for AI applications as a positive factor. The bank anticipates further growth in exports and private investments driven by increased capital spending from major international cloud service providers amid the AI boom. However, it acknowledged the uncertainty surrounding the profitability of these providers’ significant investments in AI.