I. Global economic and financial conditions

Since the Board met in September this year, the effects of the previous substantial tightening in monetary policy by major central banks have gradually materialized. The global manufacturing sector has remained subdued, while the services sector has softened. In addition, prices of crude oil and other commodities have dropped in recent months. Against such a background, inflation rates of most major economies have displayed a drastic downtrend from their peak levels, whereas core inflation rates have eased at a mild pace. As the effects of monetary policy tightening would continue to work through the economy, international institutions projected broadly softer growth momentum for major economies in 2024, coupled with slower global economic growth than this year and a continuous decline in global inflation.

Recently, major central banks in the US and Europe maintained policy rates unchanged. Market investors expected that the US and European countries' rate hike cycle has nearly come to an end and they would possibly start to reduce policy rates next year. Meanwhile, the long-term government bond yields in major economies declined, the US dollar index fell from its peak levels, and major currencies broadly appreciated against the US dollar.

Looking ahead, a string of factors such as how long major central banks' interest rates stay high, China's economic slowdown, global economic fragmentation, and the reshuffling of global supply chains could weigh on the momentum for global economic recovery. Moreover, geopolitical risks and climate change could also add to uncertainties over global inflation trends.

      II. Domestic economic and financial conditions

1. Although global final demand remained weak, Taiwan's exports gained momentum from accelerating progress in emerging technology applications such as artificial intelligence. In respect of domestic demand, private consumption recorded solid growth thanks to resurging post-pandemic demand for domestic travel and dining, but private investment remained sluggish as capital equipment imports still exhibited negative growth. The Bank forecasted the annual GDP growth rate to be 1.40% this year (see Appendix Table 1 for the forecasts by major institutions). Meanwhile, the labor market recorded a further gain in the number of employed persons and a decline in the unemployment rate in recent months.

For the outlook of next year, a rebound in global goods trade growth as projected by international institutions and the continuous boom in emerging tech applications would likely bolster growth in Taiwan's exports and private investment. In addition, it was expected that private consumption would grow moderately and government consumption would increase further. Based on these considerations, along with a lower base of GDP growth this year, the Bank forecasted that the economy would expand faster at a pace of 3.12% in 2024.

2. In recent months, weather-induced surges in prices of vegetables and fruit caused the annual growth rate of the consumer price index (CPI) to trend back up and reached 2.90% in November, whereas the annual growth rate of the core CPI (i.e., excluding vegetables, fruit, and energy items) continued to edge down to 2.38% in the same month. For the first eleven months of the year, the annual growth rate of the CPI averaged 2.48% and that of the core CPI averaged 2.60%. The Bank forecasted that the annual growth rates of the CPI and the core CPI would register 2.46% and 2.56% in 2023, lower than 2.95% and 2.61% in 2022 (see Appendix Table 2 for the forecasts by major institutions).

In regard to the price trends next year, domestic commodity prices would rise mildly as global oil prices would likely edge higher than this year according to international institutions. In contrast, domestic service prices would see slower price rises owing to a higher base effect. The Bank forecasted the annual growth rates of the CPI and the core CPI to ease to 1.89% and 1.83% in 2024, respectively. Nonetheless, close attention should be paid to the price trends of international commodities and domestic services and to weather-related disruptions as they carry important implications for the future path of domestic inflation.

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 around NT$54 billion for the September-October period. For the first ten months of the year, the annual growth rate of M2 (measured on a daily average basis) and that of bank loans and investments averaged 6.44% and 5.82% respectively, lower than the 7.54% and 7.55% recorded in the same period last year.

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

At the meeting today, the Board considered the totality of economic and financial conditions at home and abroad. The domestic inflation rate would gradually come down this year from the levels of last year and is expected to decline to around 2% next year. Moreover, the domestic output gap is estimated to remain negative next year, while a weaker global economy facing a myriad of risks could in turn dampen Taiwan's economic recovery. In this view, the Board judged that a rate hold will help foster sound economic and financial development on the whole.

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, as the recent progress in global disinflation remains clouded by many uncertainties, the Bank will stay attentive to developments in monetary policy moves by major economies, risks to steeper economic slowdown in China, price movements in global raw materials, 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 aforementioned objectives.

4. The Bank has made five amendments to its selective credit control measures since December 2020, which have helped enhance banks' risk management associated with real estate lending and curb an excessive flow of credit resources into the real estate market. In addition, the Bank's five policy rate hikes and two increases of reserve requirement ratios since March 2022 have further strengthened the effectiveness of the aforementioned selective credit control measures. Recent data also suggest that growth in construction loans of all banks have continued to slow. While housing loans recently increased faster amid a rebound in housing market transaction growth, real estate lending growth has actually seen a significant downtrend since the selective credit controls took effect, and banks' real estate lending maintained good credit quality as indicated by continuously low non-performing loan ratio of this loan bracket. The Bank will closely monitor the likely effects of real estate-related policies on the housing market, keep watch on banks' real estate lending, review the outcomes of the selective credit controls, 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/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 duties, will step in to maintain an orderly market.