I. Global economic and financial conditions

Since the Board met in December last year, the global manufacturing and services sectors have witnessed faster growth, and trade activity has gradually recovered. Nevertheless, major central banks in the US and Europe have maintained high policy rates, which have continued to restrain global economic growth momentum. Inflation rates in major economies have come down at a slower pace as services inflation remains elevated. International institutions projected the world economy to experience slightly milder growth than last year and the inflation rate to decline further this year.

While central banks in the US and Europe held policy rates steady from the second half of 2023 onwards, the BoJ moved towards monetary policy normalization this week with a rate hike and unwinding of its negative interest rate and yield curve control policies, yet still maintaining an accommodative monetary policy stance. Market investors expect that the US and European central banks would pivot to rate cuts, whereas the BoJ would likely raise policy rates again. Market attention to major central banks' monetary policy moves has induced greater volatility in international financial markets.

Looking ahead, the global economic and financial outlooks are still shrouded in many uncertainties, such as the timing for the US and European central banks to adjust their monetary tightening stance, developments in Japan's monetary policy, spillover effects of China's economic slowdown, and global economic fragmentation and supply chain restructuring. In addition, geopolitical risks and climate change could also affect the progress of global disinflation.

    II. Domestic economic and financial conditions

1. In recent months, Taiwan's exports recorded continuous growth, underpinned by stabilizing global final demand and booming business for artificial intelligence and other emerging technology applications. In regard to domestic demand, private consumption gained momentum from stronger consumer confidence amid an economic recovery, whereas investment sentiment remained lackluster as reflected by a sustained contraction in capital equipment imports. In the labor market, the number of employed persons continued increasing in recent months, the unemployment rate dropped further, and the number of furloughed workers also decreased. 

For the year as a whole, the prospects of global goods trade growth firming up and emerging tech applications gaining traction would likely fuel export growth and bolster private investment. Meanwhile, private consumption is expected to continue growing. The Bank therefore slightly upgraded the forecast for Taiwan's 2024 GDP growth rate to 3.22% (see Appendix Table 1 for the forecasts by major institutions), which was higher than 1.31% in 2023.

2. For the first two months of the year, the annual growth rate of the consumer price index (CPI) averaged 2.43%, mainly reflecting increases in prices of food (particularly fruit and food away from home) and entertainment services and rising housing rent. The core CPI (excluding vegetables, fruit, and energy items) continued slowing down gradually, with an average annual growth rate of 2.27% during the same period.

For the outlook of this year, the CPI inflation rate would likely slow down from last year given a mild rise in commodity prices, as international oil prices were projected by international institutions to edge up from the previous year, and a smaller increase in services prices owing to a high base effect. Taking into account a proposed hike in electricity rates in April this year, the Bank revised up the forecasts for the CPI and core CPI inflation rates this year to 2.16% and 2.03%, respectively, lower than 2.49% and 2.58% last year (see Appendix Table 2 for the forecasts by major institutions).

3. Domestic market liquidity was ample and short and long-term market rates fluctuated within a narrow range in recent months. For the first two months of the year, banks' excess reserves averaged around NT$54.9 billion; the annual growth rate of M2 (measured on a daily average basis) and that of bank loans and investments averaged 5.51% and 7.19% respectively.

   III. The Board decided to raise the policy rates by 0.125 percentage points

At the meeting today, the Board considered the balance of incoming data on economic and financial conditions at home and abroad. The domestic inflation rate was expected to slowly come down quarter by quarter this year. However, given that inflation has stayed at a relatively higher level since 2021 and that a proposed electricity rate hike might be implemented in April this year, inflation expectations might shift upwards. Meanwhile, the economic growth would likely pick up this year. Against this background, in order to contain domestic inflation expectations, the Board judged that a rate hike would help sustain price stability and foster sound economic and financial development on the whole.

The Board decided to raise the discount rate, the rate on refinancing of secured loans, and the rate on temporary accommodations by 0.125 percentage points to 2%, 2.375%, and 4.25%, respectively, effective March 22, 2024.

Going forward, the Bank will remain watchful of the evolving effects of electricity rate adjustments and energy transition for net-zero emissions on domestic inflation. The Bank will also stay attentive to incoming information regarding monetary policy paths of major central banks, risks from China's economic downturn, international raw material prices, geopolitical risks, extreme weather, etc. 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 gradual approach to monetary tightening since March 2022 has also helped reinforce the effectiveness of the selective credit control measures. As a result, data since the introduction of the selective credit controls have shown that growth in construction loans of all banks has continued slowing and credit quality of real estate lending remains sound as the non-performing loan ratio stays low.

Nevertheless, growth in housing loans as well as loans to the real estate sector has picked up as housing market transactions resurged, and the ratio of real estate lending to total lending of all banks remains elevated. Therefore, the Bank will continue reviewing the status of banks' real estate lending and the effectiveness of the selective credit controls, closely monitor potential impacts of real estate sector-related policies on the housing market, and adjust relevant measures 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.