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Central Bank of the Republic of China


Monetary Policy Decision of the Board Meeting

Central Bank of the Republic of China (Taiwan)

PRESS RELEASE                  Release Date: December 17, 2020

Monetary Policy Decision of the Board Meeting

I. Global economic and financial conditions

Since the Board met in September this year, the resurgence of the coronavirus (COVID-19) pandemic in Europe and the US have prompted many countries to reinstate containment restrictions, weakening the momentum for the global economic recovery. Raw materials (such as oil) prices rose back up, whereas global inflation remained subdued. Major economies continued their expansionary fiscal policies and maintained an accommodative monetary policy stance. Recent progress in vaccine development boosted the world stock markets. Meanwhile, long-term government bond yields remained at low levels. The international US dollar index displayed a continuous downtrend, while currencies of other major economies broadly appreciated against the US dollar.

International institutions project the world economy and trade volume to resume growth next year. Nevertheless, the effectiveness and distribution of vaccines, the duration of economic stimulus measures of various countries, as well as the developments of the US-China relations constitute major risks to the global economic and financial outlook.

II. Domestic economic and financial conditions

  1. Taiwan's exports recorded a marked expansion, mainly driven by thriving demand for electronic parts and components and information and communication products as well as a rebound in exports of goods produced by traditional manufacturing industries such as machinery and plastic and chemical products in recent months. However, growth in services exports was still constrained as the pandemic-related border controls remained in place in many countries, leading to a substantial decline in inbound visitors. In terms of domestic demand, labor market conditions improved with the unemployment rate moving downward, and the retail and food/beverage sectors witnessed growing business. Meanwhile, semiconductor firms continued with capital expenditure and overseas Taiwanese firms gradually repatriated investment to Taiwan. The Bank projects Taiwan's economy to expand moderately in the fourth quarter of 2020 and revises up the GDP growth forecast to 2.58% for the entire year.

    Looking ahead to next year, Taiwan's exports are expected to rise further as major economies experience improved growth, along with advancements in emerging applied technologies and continued business opportunities in remote-work technologies. Private consumption, supported by the domestic economic recovery and a lower base effect, would grow moderately. Private investment would also stay on the track of a steady increase. Overall, the Bank forecasts that Taiwan's economic growth would rise at a faster pace of 3.68% in 2021 (Appendix Table 1), with domestic demand as a major driving force of economic growth.

  2. The annual growth rate of the consumer price index (CPI) continued to trend up in recent months and turned modestly positive in November. For the first eleven months of the year, the CPI averaged -0.26% mainly resulting from domestic energy price slumps. The core CPI (excluding fruit, vegetables, and energy) posted an average annual growth rate of 0.32%. For 2020 as a whole, the Bank forecasts the CPI and core CPI to increase -0.25% and 0.35% year on year, respectively.

    Looking at inflation next year, with higher international oil prices anticipated by international forecasters and an expected pickup in consumption demand at home, the Bank projects that in 2021 the CPI and core CPI annual growth rates would rise to 0.92% and 0.71% respectively (Appendix Table 2).

  3. In the domestic financial system, liquidity remained ample, long- and short-term market interest rates fluctuated modestly in recent months. Meanwhile, banks' excess reserves stayed around an average level of NT$60 billion. 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 5.40% and 6.21%, respectively, indicating accommodative money and credit conditions to sufficiently support domestic economic activity.

    In terms of pandemic-related credit support, under the Bank's special accommodation facility to buttress small and medium-sized enterprises (SMEs) – launched in April 2020 and then expanded to a scope of NT$300 billion, banks have already received 188,744 applications with the amount totaling NT$235.5 billion. As a result, the annual growth rate of SME loans extended by monetary financial institutions rose considerably to 12.61% at the end of October.

III. Monetary policy decision

The assessment of domestic and foreign economic and financial conditions indicates that, given continued monetary policy easing and preservation of current large-scale relief and stimulus packages in major economies, and the lingering uncertainties still facing the gradual global economic recovery, the domestic economy is expected to continue to expand moderately next year. Meanwhile, inflation is rising back up and inflation expectations for the coming year are also mild. Therefore, the Board judges that a policy rate hold and a continued accommodative monetary policy stance would help sustain price and financial stability and foster economic growth.

At the Meeting today, the Board decided unanimously to keep the discount rate, the rate on refinancing of secured loans, and the rate on temporary accommodations unchanged at 1.125%, 1.50%, and 3.375%, respectively.

The Bank will closely monitor the developments of the coronavirus pandemic, monetary policy stances of major central banks and the continuity of the economic stimulus programs in major economies, changes in global financial fragilities and US-China relations, and geopolitical risks, as well as the implications thereof for Taiwan's economy, financial conditions, and price trends, so as to adopt appropriate monetary policies as warranted to fulfill its statutory duties. 

IV. The Bank have recently taken actions to promote financial stability and sound banking operations by precluding an inordinately high flow of bank credit into the real estate sector. Through verbal and written communication such as meetings and official letters, the Bank urged banks to fulfill their social responsibilities by aptly channeling credit resources towards real investment in productive business sectors, which would in turn help boost employment and raise household income levels. Moreover, the Bank reinforced previous efforts of targeted prudential measures on real estate lending by enacting the amended (and renamed) ''Regulations Governing the Extension of Real Estate Mortgages by Financial Institutions,'' effective December 8, 2020.

Furthermore, to continuously help SMEs sustain the momentum to operate smoothly amid the recent pandemic resurgence in the world, the Bank announced on December 10, 2020 that the approaching year-end deadline for SMEs to apply for credit support under the Bank's special accommodation facility will be extended to June 30, 2021, and such loans that lenders approved on or after January 5, 2021 would continue to enjoy the facility's preferential interest rates until December 31, 2021.

The Bank's targeted prudential measures on real estate lending were implemented as part of the government's latest ''Program to Foster a Sound Real Estate Market,'' particularly in line with the directive of ''efficient allocation and proper use of credit resources'' envisaged in the government's policy. Going forward, the Bank will continue monitoring the developments in the housing market and review the effectiveness of the targeted prudential measures. Meanwhile, we will pay close attention to domestic corporate funding needs as well as the course of the coronavirus pandemic and stand ready to make appropriate adjustments to the relevant measures as needed.

V. The NT dollar exchange rate is in principle determined by market forces. Nonetheless, recent spates of international capital flows coupled with an uncertain global economic outlook have added to volatility in Taiwan's foreign exchange market. The Bank will keep close watch of cross-border capital movements and act in accordance with its mandate to maintain an orderly foreign exchange market and safeguard financial market stability.


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