Monetary Policy Decision of the Board Meeting (2021Q2)
Central Bank of the Republic of China (Taiwan)
PRESS RELEASE Release Date: June 17, 2021
Monetary Policy Decision of the Board Meeting (2021Q2)
I. Global economic and financial conditions
Since the Board last met in March, economies where the coronavirus (COVID-19) outbreak came under control such as the US and Europe have gradually relaxed pandemic restrictions while keeping monetary and fiscal policy support in place, helping to sustain the upturn in global economic and trade activity and bolster the prices of crude oil and other commodities. Citing a marked firming in global demand and a lower base effect from the previous year, international forecasting institutions expect to see the world economy rebound sharply and inflation pick up faster this year. Meanwhile, recent concerns about the future courses of US inflation and the Fed’s monetary policy have rattled international financial markets.
The global economic outlook remains clouded by pandemic uncertainties, including recurring virus outbreaks, discovery of new virus variants, and uneven vaccination progress across regions. In addition, global financial fragilities from elevated asset prices and debt levels, the direction of monetary policy of major central banks, US-China relations, and climate change-related risks could also affect global economic and financial prospects.
II. Domestic economic and financial conditions
In respect of domestic economic conditions in the first quarter of 2021, exports and manufacturing production were substantially boosted by robust demand for tech and traditional sector products owing to a global economic recovery. With private investment expanding and private consumption reviving, domestic economic growth accelerated. Labor market conditions were stable and the unemployment rate dropped. As from mid-May, however, a surge in coronavirus caseloads led to tighter restrictions that battered the domestically-oriented services sector and put more people on furlough, significantly dampening private consumption. By contrast, exports strengthened steadily and private investment proceeded apace. Taken together, economic growth is thus expected to slow slightly in the second quarter.
Looking at the latter half of 2021, the economy is likely to gain momentum from exports and private investment growth well-underpinned by a continued global economic recovery, increased government spending on pandemic relief efforts, and the prospect of private consumption stabilizing once the domestic outbreak is contained. In this view, the Bank anticipates a slower growth pace in the second half of 2021 compared to the first half and forecasts Taiwan's economy to grow by 5.08% for the year as a whole (Appendix Table 1).
As domestic fuel and lubricant prices surged on the back of international crude oil price upswings from the beginning of the year, coupled with a lower base effect, the annual growth rate of the consumer price index (CPI) climbed and reached 2.48% in May while that of the core CPI (excluding fruit, vegetables, and energy items) stood at 1.58%. For the first five months of the year, the average annual growth rates of the CPI and the core CPI were 1.39% and 1.13%, respectively, representing mild price uptrends for both. Domestic inflation is estimated to peak in the second quarter – a transitory uptick owing to a lower base effect, before moderating gradually in the second half of the year. For 2021 as a whole, the Bank projects the CPI and core CPI annual growth rates to be 1.60% and 1.11%, respectively (Appendix Table 2).
In recent months, banks' excess reserves stayed around a range from NT$50 billion to somewhat above NT$60 billion. The average annual growth rate of the monetary aggregate M2 dropped from the 8.96% of the first quarter to 8.83% in April. Meanwhile, short- and long-term market interest rates fluctuated slightly. Overall, financial conditions were accommodative.
Under the Bank's the Special Accommodation Facility to Support Bank Credit to SMEs (''the Facility'') launched in April 2020, financial institutions have so far received approximately 223 thousand applications with the amount totaling NT$326.2 billion. As of the end of April 2021, the annual growth rate of SME loans extended by banks registered 13.46% and the annual growth rate of overall bank lending was 7.32%.
To enhance SME funding support following the COVID-19 flare-up in mid-May, the Bank raised the total amount of the Facility from NT$300 billion to NT$400 billion, extended the deadline for SME applications to Dec. 31, 2021, stretched the applicable duration of preferential interest rates on newly-approved cases through to June 30, 2022, and allowed increased borrowing within the specified maximum. Effective from June 4, 2021, this expanded policy effort is envisaged to continue to help SMEs bridge across this challenging period of economic disruption.
III. Monetary policy decision
Abroad, the global economic pickup could still be mired by a multitude of risks, and major economies have maintained monetary easing and large fiscal stimuluses. At home, domestic inflation is expected to be mild this year after the transient spike wanes, and exports and private investment would buttress solid economic growth for the year as a whole despite recent pandemic-induced strains on consumption. Taking this assessment into account, the Board judged that maintaining the current policy rate levels and monetary easing 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 evolution of the coronavirus pandemic, monetary policy stances of major central banks, changes in global raw material prices and financial conditions, and developments in international political and economic situations, 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.
- After two successive amendments in December 2020 and March 2021, the Bank's selective credit controls have brought down the loan-to-value ratios of all the types of mortgage loans under regulation. As of the end of April, the average annual growth rate of home loans extended by banks rose modestly while that of construction loans declined further, and their non-performing ratios stayed low. Banks appeared to have demonstrated good credit risk management in this regard.
A healthy real estate market demands a concerted, multilateral effort, which has been reflected in a host of measures rolled out across government agencies. Combined with the enforcement of the amended "integrated house and land sales tax" and the implementation of a revised property transaction price declaration mechanism, both effective from July1, 2021, it is expected to help rein in property speculation. The Bank will pay close attention to developments in the housing market and banks' management of credit risk associated with real estate lending. We will also monitor the results of the regulations and measures introduced and make timely adjustments to the relevant measures as warranted.
- The NT dollar exchange rate is in principle determined by market forces. Nonetheless, when seasonal or irregular factors (such as massive inflows or outflows of short-term capital) lead to excess volatility and disorderly movements in the NT dollar exchange rate with adverse implications for economic and financial stability, the Bank, in line with its statutory mandates, will step in to maintain an orderly market.