Taiwan's central bank kept interest rates unchanged for a tenth consecutive quarter, but raised its economic-growth forecast and lifted its inflation projection for this year.

The Central Bank of the Republic of China (Taiwan) raised its 2026 gross-domestic-product growth forecast to 11.48% from 9.45%, citing steady domestic economic conditions.

It also increased its inflation forecast to 2.03% from 1.91%, though it expects price growth to ease to 1.83% in 2027.

Policymakers maintained the benchmark discount rate at 2.000%. Secured and unsecured lending rates were left unchanged at 2.375% and 4.250%, respectively.

The decision had been expected to be a close call, with economists polled by The Wall Street Journal nearly evenly split over whether policymakers would raise rates or hold steady.

The central bank said keeping rates steady would support the stable development of Taiwan's economy and financial system. Its decision took into account domestic as well as international economic and financial conditions for its decision, including uncertainty over the Middle East conflict and its potential impact on prices and growth.

Consumer inflation has remained above the central bank's 2% warning level for four months. However, strong economic growth fueled by the artificial-intelligence boom has given policymakers room to hold off on the rate increases that many other central banks have pursued since the Iran war began.

The central bank "seemed fairly sanguine" on inflation risks, Capital Economics said, noting that despite CBC raising its 2026 inflation forecast, it expects prices to cool in 2027.

Looking ahead, CBC said it will closely monitor domestic inflation, monetary-tightening in major economies, domestic financial conditions and other uncertainties. These include the outlook for AI applications, the impact of U.S. economic and trade policies and extreme weather.

It said it will adjust monetary policy as needed to maintain price and financial stability while supporting economic development.

The central bank's remarks highlight the challenge facing policymakers worldwide as renewed escalation in the Middle East roils oil markets and revives inflation concerns. Bond yields have soared as markets price in more aggressive tightening.

CBC's decision comes a day after the Federal Reserve raised its benchmark rate by 25 basis points to combat above-target inflation. Most officials penciled in one more increase this year.

The Bank of Japan is widely expected to follow suit Friday as officials signal growing concern about price pressures.

But not all central banks have room to keep raising rates, particularly when tighter policy risks curbing growth. Some economists also question the effectiveness of using monetary policy to counter a supply-driven shock.

CBC is likely to keep its rates unchanged for the foreseeable future, against a backdrop of subdued price pressures and solid economic growth, Capital Economics' Jason Tuvey said in a note.