Monetary Policy Decision of the Board Meeting (2025Q1)

       I. Global economic and financial conditions

Since the Board met in December last year, growth in the global manufacturing sector has somewhat picked up and the services sector has experienced continuous expansion, contributing to sustained and mild growth in the global economy. In recent months, the prices of international crude oil, grains, and other commodities declined and global inflation continued to soften.

In the year so far, the Fed held off from lowering rates, while the ECB maintained its rate-cutting cycle. Meanwhile, the BoJ slowed down the pace of rate rises, whereas the PBoC's monetary policy remained accommodative. With uncertainties rising over the implications of the new US administration's economic and trade policies, the US government bond yields reverted to a downtrend, and the US dollar index softened, inducing greater volatility in global financial markets.

International institutions projected slower growth for the global economy in 2025 compared to the previous year and a continuous easing of inflation in major economies, albeit with a moderating decrease. Looking ahead, factors such as the US tariff policy shifts and response measures taken by major economies, as well as global economic fragmentation and supply chain restructuring, could increase downside risks to the global economy and upside risks to global inflation. In addition, China's economic slowdown and geopolitical conflicts would add to uncertainties surrounding the global economic and inflation outlook.

      II. Domestic economic and financial conditions

1. In recent months, Taiwan's exports expanded at a solid pace, supported by a sustained boom in demand for artificial intelligence (AI) and other emerging technology applications. In respect of domestic demand, private investment maintained momentum as semiconductor firms increased capital equipment imports, while private consumption continued growing. Data on recent labor market conditions showed a further increase in the number of employed persons, a continuous decline in the unemployment rate, and mild wage growth.

For the outlook this year, the persistent high demand for AI and other emerging technology applications would continue to drive export growth and boost private investment. Meanwhile, with minimum wage and public sector pay both raised this year, private consumption is expected to post moderate growth. The Bank therefore projected the economy to expand by 3.05% this year (see Appendix Table 1 for the forecasts by major institutions).

2. For the first two months of the year, the annual growth rate of the consumer price index (CPI) averaged 2.12%, and that of the core CPI (excluding vegetables, fruit, and energy items) averaged 1.61%, both continuing to come down gradually.

Considerations for the inflation outlook this year include: the minimum wage and public sector pay are both raised, carbon fees are implemented, and a steady but slow disinflation is expected for still highly sticky services prices, whereas international forecasters project oil prices to trend downwards. The Bank therefore forecasted the CPI and the core CPI annual growth rates to register 1.89% and 1.79% in 2025 (see Appendix Table 2 for the forecasts by major institutions), respectively, lower than the 2024 figures of 2.18% and 1.88%, respectively.

If taking into account a potential hike in utility rates, such as the Taiwan Railway ticket fares or water and electricity tariffs, the CPI inflation rate forecast could be revised upwards to around 2%, but the core CPI inflation rate forecast would still be lower than the 1.88% registered last year.

3. Domestic market liquidity remained ample, and both long- and short-term market interest rates fluctuated within a narrow range in recent months. Banks' excess reserves averaged above NT$57 billion for the first two months this year. For the same period, the average annual growth rate of the monetary aggregate M2 (measured on a daily average basis) was 5.36% and that of bank loans and investments was 7.93%, both deemed sufficient to support economic activity.

     III. 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 would continue to ease gradually this year, with the CPI inflation rate forecasted to come down to around 2% and the core CPI inflation rate to soften below 2% for a second consecutive year. Meanwhile, a slower pace of global economic growth overshadowed by an array of risks could weigh on domestic growth momentum. Taking a prudent approach in response to the influences of uncertainty factors such as the US economic and trade policies, 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 the implications of uncertainties for Taiwan's economic activity and financial conditions, including US economic and trade policy shifts, the pace of monetary policy adjustment by major central banks, China's economic downturn risk, geopolitical conflicts, and extreme weather. The Bank will adjust its monetary policy accordingly in a timely manner as warranted 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 in 2024, 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 2024Q4 to 2025Q4). Then, in September 2024, the Bank made the seventh amendment to its selective credit control measures.

Since these policies took effect, the loan brackets under the credit controls have witnessed lower loan-to-value (LTV) ratios and higher interest rates; with softening public expectation for housing price rises, housing market transactions have been decreasing and housing prices have increased at a slower pace. In addition, housing loans to non-homeowner borrowers as a share of total housing loans in domestic banks have risen. Recent data showed that banks' housing loans and construction loans both posted slower year-on-year growth. The ratio of real estate lending to total lending of all banks (a measure of concentration of real estate lending) also declined to 37.1% as of the end of February this year.

Going forward, the Bank will maintain close watch on bank credit concentration on real estate lending, conduct quarterly reviews on the progress of banks' internal improvement plans for real estate lending, and perform targeted financial examinations, so as to ensure vigorous compliance of the Bank's rules and regulations in this regard. Meanwhile, the Bank will review 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.