Monetary Policy Decision of the Board Meeting

I.        Global economic and financial conditions

Since the Board met in late September this year, the global economy has gradually picked up with subdued inflation. Major economies have maintained an accommodative monetary policy stance, and international financial markets have stabilized.

Looking ahead to next year, international institutions forecast a steady expansion in the global economy and mild growth in world trade. Nevertheless, a multitude of uncertainties such as developments of protectionist trade policies, monetary policy of major economies, and geopolitical risks could impact the global economic and trade outlooks.

II.     Domestic economic and financial conditions

1.    Benefitting from diverted orders from the US-China trade dispute and expanded domestic production by Taiwanese businesses, exports resumed growth last month. In terms of domestic demand, private investment witnessed stronger growth, underpinned by increased imports of capital equipment by the semiconductor industry. Meanwhile, rising retail sales indicated a continued expansion in private consumption. The Bank projects Taiwan's economy to expand moderately in the fourth quarter and register a 2.60% growth rate for the entire year. With respect to labor market conditions, the unemployment rate marginally rose from the same period a year earlier and wage growth moved up at a slightly slower pace.

Going forward, continued growth in emerging technology applications and efforts by domestic manufacturers to boost production capacity are likely to support a rebound in export growth. Combined with the projections of steadily increasing private investment, stable growth in private consumption, and higher government spending, the Bank therefore forecasts the domestic economy to grow by 2.57% in 2020 (Appendix Table 1).

2.    Domestic inflation has remained low and stable since the beginning of 2019. For the first eleven months of the year, the consumer price index (CPI) and the core CPI (excluding fruit, vegetables, and energy items) recorded average annual growth rates of 0.51% and 0.49%, respectively. For the year as a whole, the Bank forecasts the CPI and core CPI annual growth rates to be 0.54% and 0.49%, respectively.

Looking at inflation next year, as international oil prices are projected by international institutions to stay at low levels, imported inflationary pressures are likely to abate. In addition, domestic demand is expected to be moderate. These factors point to a stable inflation outlook. The Bank forecasts the annual growth rates of CPI and core CPI for 2020 to be 0.77% and 0.70%, respectively (Appendix Table 2).

3.    For the first ten months of the year, the average annual growth rates of the monetary aggregate M2 and of bank loans and investments were 3.32% and 4.70%, respectively, indicating that money and credit conditions were sufficient to support domestic economic activity. Financial conditions continued to be accommodative in recent months, as both short- and long-term interest rates remained steady and banks' excess reserves stayed around the level of NT$40 billion. In view of a seasonal rise in demand for funds prior to the solar and lunar New Year holidays, the Bank will manage market liquidity with some flexibility to ensure the demand is adequately met.  

III.    Interest rate decision

Based on the latest information about economic and financial conditions at home and abroad, the Board considers that a slightly negative output gap and a stable inflation outlook are projected for Taiwan next year, and the domestic economy is expected to register steady growth as global economic growth remains on track despite the uncertainties. Meanwhile, Taiwan's real interest rates are around the middle range among a host of economies (Appendix Table 3). Therefore, the Board judges that a policy rate hold and a continued accommodative monetary policy stance will help ensure price stability and foster sound development of the economy and the financial sector.

The Board reached the following decision unanimously at the Meeting today:

The discount rate, the rate on accommodations with collateral, and the rate on accommodations without collateral are kept unchanged at 1.375%, 1.75%, and 3.625%, respectively.

IV.   Starting from year 2020, the target range for M2 growth will become the reference range, which remains between 2.5% and 6.5%. It will not be reset on an annual basis. However, in the event of persistent deviations in M2 growth from the reference range or structural changes, the Bank would conduct a review and make necessary adjustment in a timely manner.

V.      In the housing market, transactions have increased and prices have gradually trended up this year. Homebuilders have stepped up land acquisition and the offering of new housing projects, while banks have recorded faster year-on-year rises in loans for home purchases and building construction. The Bank will keep a watchful eye on risk management in financial institutions associated with real estate lending so as to safeguard financial stability.

VI.   With regard to the latest developments in the US-China trade dispute, the two economies reached a ''phase-one'' deal last week. The Bank will closely monitor future developments therefrom, as well as the implications of other international uncertainties – including China's economic slowdown, monetary policy moves in major economies, global corporate debt overhang, and geopolitical risks – for Taiwan's economy and financial conditions. If warranted by the situation, the Bank will act timely as appropriate to fulfill its statutory mandate.

VII. The NT dollar exchange rate is in principal determined by market forces. Nonetheless, if irregular factors (such as massive inflows or outflows of short-term capital) as well as seasonal ones lead to excess volatility and disorderly movements in the NT dollar exchange rate with adverse implications for economic and financial stability, the Bank will, pursuant to its mandate, step in to maintain an orderly foreign exchange market.