Taipei:Taiwan's inflation remains under control, but there are concerns that consumer prices could face increased pressure if government subsidies for state-run Taiwan Power Co. (Taipower) and CPC Corp., Taiwan are withdrawn. This comes amidst rising global oil prices, according to Central Bank Governor Yang Chin-long.

According to Focus Taiwan, Yang addressed the Legislative Yuan's Finance Committee, emphasizing that while Taiwan's consumer price index (CPI) has stayed above the government's 2 percent inflation threshold for five months, inflation is still considered manageable. The central bank's report forecasts a CPI increase of 2.03 percent in 2026, with a decrease to 1.83 percent in 2027.

Yang explained that higher oil prices are a key factor in supply-side inflation and that government measures to stabilize electricity and fuel prices are more effective than interest rate hikes. He indicated that policymakers would keep a close watch on domestic prices and economic conditions before considering rate increases.

In response to questions about the impact of potential budget allocation failures for Taipower and CPC, Yang suggested that inflation should remain manageable if energy stabilization measures are maintained. However, a withdrawal of both budget support and subsidies could lead to increased inflation.

Yang also addressed concerns about a liquidity crunch, noting that domestic banks have a liquidity coverage ratio of about 120 percent, well above the regulatory minimum. He attributed recent changes to banks' deposit structures rather than a funding shortage.

Additionally, Yang pointed out that the Taiwan dollar's recent weakness is due to foreign investors repatriating profits from local equities, not U.S. dollar strength. He stated that the central bank would manage foreign exchange market fluctuations under its "willow tree theory" to prevent excessive volatility.