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DBS expects Taiwan rate hike in 2H26 as growth stays strong

Taiwan’s 2Q GDP growth slowed to 12.9% year on year, while domestic demand contributed 7.1 percentage points versus net exports at 5.8 percentage points.

Reported · Written up by our desk · Central Banks

DBS Group Research economist Ma Tieying said Taiwan’s 2Q GDP growth cooled but remained solid, with growth slowing to 12.9% year on year from 14.5% in 1Q. On a quarter-on-quarter seasonally adjusted annual rate basis, growth held up at 9.9%, versus 6.9% in 1Q, according to the firm’s commentary carried by FXStreet.

DBS pointed to a narrowing divergence between exports and domestic demand. Net exports contributed 5.8 percentage points to headline GDP growth, while domestic demand added 7.1 percentage points, marking the first time in five quarters that domestic demand contributed more than net exports.

The outlook also ties into currency and rates expectations, with DBS saying the GDP data should give the central bank enough confidence to hike in 2H26. The firm expects CPI inflation to stay in a 2% to 2.5% year on year range through 2H26, citing a rebound in oil prices linked to renewed Middle East tensions and volatile food prices under El Niño conditions.

DBS maintained its forecasts for 2026 and 2027 GDP growth and reiterated a planned policy move, expecting a 12.5 basis point rate hike in 4Q to bring the policy discount rate to 2.125%. FXStreet also noted ongoing market pressure in Taiwan, including a roughly 10% drop in the TAIEX from its late-June peak and foreign net selling of the index totaling USD 23 billion in July.

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