I. Global economic and financial conditions

Since the Board met in June this year, the cumulative effects of significant policy rate hikes by major central banks in the US and Europe since 2022 have continued to work through the economy. Growth in the global manufacturing sector has remained tepid, while services activity has turned weaker. There has been a divergence in economic growth across major economies. The US economy has exhibited solid expansion, whereas the euro area and the UK have registered anemic economic growth. Japan's economy has grown mildly, yet China has faced rising downside economic risks. With regard to inflation trends, commodity prices have declined as global demand softened, whereas services prices have remained stubbornly high because of downward price stickiness, leading global inflation to trend down at a slow pace.

In recent months, considering still elevated inflation rates, some central banks continued their rate hike paths, while other central banks kept policy rates on hold. As inflationary pressures linger in major economies, high interest rates may sustain for some time. It is thus expected that the world economic and trade growth momentum would remain subdued. In recent months, global financial markets fluctuated as investor expectations on US and European monetary policy paths shifted. The US dollar index rebounded and major currencies broadly depreciated against the US dollar.

Looking ahead, the global economic and financial outlooks are clouded by multiple uncertainties, such as the cumulative effects of monetary tightening by major central banks and the duration of interest rates staying high, China's economic slowdown, and fragmentation of the global economy, which could all restrain the momentum for global economic recovery. International institutions projected the world economy to grow at a moderate pace and the inflation rate to drop further in 2024. Nevertheless, geopolitical risks and climate change may affect the supply of commodities, and the global inflation trends remain uncertain.

     II. Domestic economic and financial conditions

1. In the months since midyear, the decline in Taiwan's export growth has slowed as continued sluggishness in global final demand was somewhat offset by stronger export momentum of information communication technology products to meet demand for emerging technology applications and by narrower contractions in traditional sector exports. In respect of domestic demand, corporate investment willingness remained muted, with imports of capital equipment still mired in double-digit negative growth. In contrast, private consumption rose steadily on the back of strong post-pandemic demand for dining and tourism. For the second half of the year, the Bank projected the GDP growth rate to rebound to 3.81% on account of a lower base effect. The Bank's GDP growth forecast for the year as a whole was 1.46% (see Appendix Table 1 for the forecasts by major institutions), lower than the June forecast of 1.72%. Regarding labor market conditions in recent months, job gains continued, the unemployment rate came lower than a year ago, and nominal wage increased mildly.  

For the outlook of next year, it was expected that exports and private investment would gather pace amid a pickup in global goods trade growth and further development in emerging technology applications. Private consumption would also continue expanding next year thanks to the planned minimal wage hike and public sector pay raise, albeit with slower year-on-year growth than 2023 owing to a higher base effect. The Bank expected Taiwan's economy to grow by 3.08% in 2024.

2. In the months from June onwards, the annual growth rate of the consumer price index (CPI) rebounded after dipping, mainly reflecting changes in fruit, vegetables, and oil prices, while the annual growth rate of the core CPI (i.e., excluding fruit, vegetables, and energy items) edged down. For the first eight months of the year, the headline inflation rate averaged 2.29% and the core inflation rate averaged 2.66%. According to the Bank's projections, inflation would trend slightly lower in the second half of the year than in the first. For this year as a whole, the annual growth rate of the CPI and that of the core CPI were forecasted to register 2.22% and 2.44%, respectively (see Appendix Table 2 for the forecasts by major institutions), lower than the 2022 readings of 2.95% and 2.61%. Indeed, domestic inflation came down slowly in the year so far, mainly because a gradual moderation in commodity inflation amid faltering import and production price trends was counteracted by elevated services inflation owing to robust post-pandemic demand for entertainment services.

In regard to the price trends next year, it was expected that, despite a modest rebound in international oil prices, softer domestic services inflation would bring Taiwan's inflation rate lower than this year. The Bank forecasted the headline and core inflation rates to further slow down to 1.83% and 1.73% in 2024, noting that the future path of domestic inflation could still be affected by factors including the price trends of international commodities and domestic services, as well as weather-related disruptions.

3. Domestic market liquidity was ample and short and long-term market rates fluctuated within a small range in recent months. Banks' excess reserves averaged slightly above NT$60 billion for the June-August period. The annual growth rate of M2 (measured on a daily average basis) and that of bank loans and investments averaged 6.60% and 5.80% respectively in the first eight months of the year, lower than the 7.66% and 7.77% recorded in the same period last year.

    III. The Board decided unanimously to keep the policy rates on hold 

While taking into account the aforementioned economic and financial conditions at home and abroad, the Board also considered the following: Domestic inflation is softening gradually and the inflation rate is expected to come down to below 2% next year. Furthermore, the domestic economy would likely expand at a slower-than-expected pace this year and the output gap is estimated to be negative for both this and next year. The Board judged that a rate hold will help foster sound economic and financial development on the whole.

At the meeting today, the Board decided to maintain the discount rate, the rate on refinancing of secured loans, and the rate on temporary accommodations at current levels of 1.875%, 2.25%, and 4.125%, respectively.

Going forward, in view of downside risks to the global economy and the persistence of inflationary pressures, the Bank will stay attentive to the developments including the spillover effects of monetary tightening by major economies, signs of steepening in China's economic slowdown, international raw material price changes, geopolitical risks, and extreme weather events. The Bank will assess their implications for domestic economic activity and financial conditions and adjust its monetary policy in a timely manner as warranted, so as to fulfill the statutory duties of maintaining financial and price stability and fostering economic development within the scope of the above objectives.

4. The Bank has made five amendments to its selective credit control measures since December 2020 to help enhance bank management of real estate credit risk and curb an excessive flow of credit resources into the real estate market. The Bank's tightening of the policy rates and the reserve requirement ratios since March 2022 have further strengthened the effectiveness of the selective credit controls. In the year to date, growth in construction loans and housing loans have both slowed and the non-performing loan ratio of real estate lending has stayed low, indicating good credit quality. As government agencies carry on with their policy efforts under the Healthy Real Estate Market Plan and improve relevant mechanisms and measures, housing transactions and the price uptrend have both eased so far this year, with more policy effects expected to show successively. Going forward, the Bank will continuously monitor the developments in housing credit and the real estate market and the implementation results of the selective credit control measures, and will make adjustments as needed in order to promote financial stability and sound banking operations.

5. The NT dollar exchange rate is in principle determined by market forces. Nonetheless, when irregular factors (such as massive inflows or outflows of short-term capital) and seasonal factors lead to excess volatility or disorderly movements in the NT dollar exchange rate with adverse implications for economic and financial stability, the Bank, in accordance with its statutory mandates, will step in to maintain an orderly market.