Monetary Policy Decision of the Board Meeting (2024Q4)

1. Global economic and financial conditions

Since the Board met in September this year, the global manufacturing sector has recovered at a slow yet steady pace, while the services sector has continued to expand, and the global economy has registered mild growth. In recent months, global inflation has eased further on account of a downtrend in prices of international oil, grains, and other commodities as well as easing labor market conditions in major economies. Recent market attention to future changes in economic and trade policies of the new US administration has intensified international financial market volatility.

Looking ahead, the unwinding of monetary tightening by major central banks is expected to sustain growth momentum for the global economy. International institutions therefore projected mild growth for the global economy in 2025 and a continuous easing of global inflation. However, multiple uncertainties such as the new US administration's economic and trade policy shifts, spillover effects of China's economic slowdown, and geopolitical conflicts all pose downside risks to the global economy.

2. Domestic economic and financial conditions

1. In recent months, Taiwan's exports grew steadily, supported by an ongoing surge in demand for artificial intelligence and other emerging technology applications. With regard to domestic demand, private investment picked up further with capital equipment imports increasing significantly since mid-year, and private consumption also continued growing. The Bank forecasted Taiwan's economy to expand by 4.25% for the year as a whole (see Appendix Table 1 for the forecasts by major institutions). Regarding recent labor market conditions, the number of employed persons increased in recent months and the unemployment rate came back down, alongside mild wage growth.

For the outlook of next year, a steady upturn in global trade growth and strong demand for emerging tech applications would continue to drive the growth momentum for Taiwan's exports and private investment. Meanwhile, a scheduled hike in minimum wage and public sector pay next year would support further growth in private consumption. The Bank therefore projected the economy to expand by 3.13% in 2025. Nevertheless, US economic and trade policy changes under the new administration will be an important variable in affecting Taiwan's economic outlook.

2. As weather disruptions caused greater fluctuations in recent months in domestic prices of food (particularly vegetables and fruit), the annual growth rate of the consumer price index (CPI) rose back up to 2.08% in November, while the annual growth rate of the core CPI (excluding vegetables, fruit, and energy items) also rose to 1.74%. For the first eleven months of the year, the average annual growth rate of the CPI was 2.18% and that of the core CPI was 1.90%, both continuing with a gradual downtrend. The Bank forecasted the CPI and the core CPI annual growth rates to register 2.18% and 1.90% in 2024 (see Appendix Table 2 for the forecasts by major institutions), respectively, lower than the 2023 figures of 2.49% and 2.58%.

For year 2025, in spite of the launch of carbon fees and the aforementioned hike in minimum wage and public sector pay, international oil prices are expected by international institutions to soften and domestic services inflation is expected to continue edging down. In this view, the Bank forecasted Taiwan's CPI and core CPI annual growth rates to slow further to 1.89% and 1.79% next year. Factors likely to influence the future path of domestic inflation include price trends of international commodities and domestic services, as well as weather conditions.

3. Domestic market liquidity was ample, and both long- and short-term market interest rates fluctuated within a narrow range in recent months. Banks' excess reserves averaged around NT$50 billion for the three months from September to November this year. For the first eleven months of the year, the average annual growth rate of the monetary aggregate M2 (measured on a daily average basis) was 5.86% and that of bank loans and investments was 8.01%, both deemed sufficient to support economic activity.

3. The Board decided unanimously to keep the policy rates unchanged

At the meeting today, the Board considered the totality of information on the economic and financial conditions at home and abroad. Domestic inflation has broadly maintained a gradual downtrend and would likely ease further to below 2% next year. While downside risks are looming for the global economy, Taiwan's economy is expected to experience mild growth momentum next year on the back of domestic demand. Against this background, the Board judged that a rate hold would help sustain sound economic and financial development on the whole.

The Board decided to keep the discount rate, the rate on refinancing of secured loans, and the rate on temporary accommodations unchanged at 2%, 2.375%, and 4.25%, respectively.

Going forward, the Bank will stay attentive to the evolving trends in domestic inflation and closely monitor new developments in the US economic and trade policy changes, the pace of monetary policy adjustment by major central banks, China's economic downturn risk, geopolitical conflicts, and extreme weather, and their implications for Taiwan's economic activity and financial conditions. The Bank will adjust its monetary policy accordingly 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. Around mid-August this year, the Bank had through moral suasion asked banks to enhance internal control of the aggregate amount of real estate lending over the coming year (from 2024 Q4 to 2025 Q4). Then, in September, the Bank made the seventh amendment to its selective credit control measures in September. Recent data showed that, after these efforts took place, housing transactions decreased, consumer expectations of housing price rises eased, and domestic banks recorded a rising share of housing loans taken out by non-homeowners as a percentage of total home loans.

Recent data also showed that the annual growth rates of banks' housing loans and construction loans both moved lower. However, the ratio of real estate lending to total lending of all banks (a measure of concentration of real estate lending) remained elevated, registering 37.4% at the end of November this year. The Bank will keep track of­ the progress of banks' internal improvement plans for real estate lending and strive to ensure such plans are carried out vigorously.

In the future, the Bank will continue reviewing the effectiveness of the selective credit control measures, 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.