Monetary Policy Decision of the Board Meeting
Central Bank of the Republic of China (Taiwan)
PRESS RELEASE Release Date: June 18, 2020
Monetary Policy Decision of the Board Meeting
I.Global economic and financial conditions
Since the Board met in late March this year, the spread of the coronavirus (COVID-19) pandemic has prompted many economies to implement containment and lockdown measures, resulting in economic shutdowns and dramatic volatility in international financial markets. Falling global demand, disruptions to global supply chains, as well as persistently low international oil prices have contributed to output losses and a marked drop in inflation. International institutions have projected the world economy to experience a severe recession this year. Major economies have rolled out large-scale fiscal stimulus measures and provided stronger monetary policy support to underpin economic activity badly hit by the virus outbreak.
As major economies successively lifted lockdown measures in recent weeks and restarted economic activity, the global economy is likely to gradually recover from the economic downturn. Meanwhile, major central banks have broadly kept policy rates unchanged. Nevertheless, a string of uncertainties such as the future course of the pandemic, US-China relations, heightened global financial fragility, and geopolitical risks constitute key variables clouding the world economic outlook.
II.Domestic economic and financial conditions
1.The coronavirus outbreak has caused both domestic and external demand to soften and Taiwan's economic growth to decelerate since early this year. Exports have registered months of negative growth and consumer confidence has remained weak, leading to substantial declines in retail sales and restaurant business. However, private investment, bolstered by the semiconductor industry's increased imports of capital equipment, and government spending have sustained economic growth. With regard to labor market conditions, the number of employed persons decreased and the unemployment rate moved up, while wage growth moderated.
Looking ahead to the second half of the year, the pandemic could continue to weigh on the growth momentum for the global economy and trade, putting a dent on Taiwan's exports and inbound tourism. Growth in service exports would remain constrained. Nevertheless, with the easing of domestic social distancing restrictions and the introduction of stimulus measures to boost consumption, private consumption is likely to witness a rebound. In addition, mild growth in private investment and steady expansion in government spending are also expected to push up economic growth quarter by quarter. Therefore, the Bank forecasts the domestic economy to expand by 1.52% in 2020 (Appendix Table 1).
2.For the first five months of the year, the consumer price index (CPI) registered an average annual growth rate of -0.11%, affected mainly by price slumps in energy items such as fuel and gas. The core CPI (excluding fruit, vegetables, and energy) recorded an average annual growth rate of 0.29%.
In terms of the outlook for the second half of the year, domestic inflation is likely to experience weaker downside pressures from energy price declines as international oil prices are expected to gradually pick up with the easing of the pandemic. Combined with a rebound in domestic consumer demand, it is projected that the CPI annual growth rate for the latter half of 2020 would register higher than that for the first half. For this year as a whole, the Bank forecasts the CPI and core CPI annual growth rates to be 0.01% and 0.36%, respectively (Appendix Table 2).
3.In view of the economic impacts of the pandemic, the government has introduced relief loan programs both for enterprises and for workers. Meanwhile, the Bank has announced an NT$200 billion special accommodation facility to support lending to small and medium-sized enterprises (SMEs). Since its launch on April 1, banks have processed 87,348 loan applications totaling NT$75.6 billion. Reflecting these results, bank credit to SMEs has risen and total bank lending grew by more than 6% year on year as of the end of May.
With ample liquidity in the domestic banking system, coupled with the aforementioned facility and government measures, financial intermediation has functioned well and the flow of credit to SMEs has been smooth, helping to sustain businesses, retain jobs, and protect paychecks. Furthermore, the Bank's policy rate cut in March has brought down long and short-term market rates and thus alleviated the interest burdens on corporates and households, which have mitigated the pandemic's damage to economic activity and the labor market.
III.Monetary policy decision
With the domestic outbreak kept under control and fiscal and monetary expansion starting to bear fruit, Taiwan's economic system has stayed broadly on track. Despite many uncertainties over the global economic outlook, domestic demand is likely to drive the economy towards a mild upturn. In addition, since muted inflation and weakening inflation expectations are expected to be transitory, prices are likely to stabilize in the second half of the year. Against this backdrop, the Board judged that a policy rate hold and a continued accommodative monetary policy stance will help ensure price and financial stability and foster economic growth.
The Board reached the following decisions unanimously at the Meeting today:
The discount rate, the rate on refinancing of secured loans, and the rate on temporary accommodations are kept unchanged at 1.125%, 1.50%, and 3.375%, respectively.
The Bank will continue to closely monitor the future course of the coronavirus pandemic, the monetary policy actions by major economies and the outcome of their stimulus measures, and the economic and financial conditions and price trends at home and abroad. The Bank will, should the situation warrants, hold Executive Directors' Meetings or emergency Board Meetings outside the regular schedule and deploy appropriate monetary policy tools to achieve its statutory duties.
IV.The Bank will evaluate regularly the implementation of the special accommodation facility and make adjustments to the size and duration of the program as appropriate. The Bank urges domestic financial institutions to adequately fulfill their roles as financial intermediaries and actively extend loans under the facility, so as to ensure that the SMEs (including small business entities) affected by the pandemic can obtain the funds needed to support their operations.
V.The NT dollar exchange rate is in principle determined by market forces. However, uncertainties surrounding the global economic outlook have led to heightened volatility across international financial markets, with adverse implications for the stability of Taiwan's foreign exchange and financial markets. The Bank will pay close attention to cross-border capital movements and act in line with its mandate to maintain an orderly foreign exchange market and safeguard financial market stability.
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