Monetary Policy Decision of the Board Meeting (2025Q2)

1. Global economic and financial conditions

Since the Board met in March this year, changes in U.S. tariff policies have led global manufacturing activity to move into contraction and the global economy to expand at a slower pace. International institutions broadly revised downward the global economic and trade growth forecasts of this year. Global inflation is expected to ease further over the course of the year.

Following the U.S. announcement of substantial reciprocal tariffs, uncertainty over global economic and trade policies heightened. This, along with mounting concerns over the U.S. fiscal outlook, triggered greater volatility in international financial markets, which later subsided after the temporary postponement of reciprocal tariff measures.

From April onwards, paces in monetary policy moves of major central banks varied. The U.S. Federal Reserve halted rate reduction, whereas the Bank of Japan held off from raising rates. Meanwhile, the European Central Bank maintained its rate-cutting cycle, and the People's Bank of China stepped up monetary easing measures.

Looking ahead, a string of factors such as the outcomes of U.S. tariff negotiations with major economies, monetary policy actions of major central banks, China's economic slowdown, as well as geopolitical conflicts and climate change, would increase uncertainties surrounding the global economic and financial outlook.

2. Domestic economic and financial conditions

1. Supported by strong demand for artificial intelligence (AI) and other emerging technology applications, as well as front-loading by overseas firms in response to U.S. tariff policies, Taiwan's exports have expanded significantly in the year to date and private investment has picked up markedly. Meanwhile, private consumption has continued to grow. Consequently, economic growth has fared much stronger than expected. Regarding labor market conditions, for the first four months of the year compared to the same period last year, the unemployment rate has declined and the number of employed persons has increased, along with mild wage growth.

Looking ahead to the second half of the year, it is expected that, with a cautious global economic outlook amid high uncertainty surrounding U.S. tariff policies, coupled with the front-loading already executed by overseas firms and a higher base effect, Taiwan's exports and private investment would experience weaker growth momentum, while private consumption would grow at a moderate pace. The Bank therefore projected the economy to expand by 3.05% this year (see Appendix Table for the 2025 forecasts by major institutions), same as the previous forecast.

2. For the first five months of the year, the annual growth rate of the consumer price index (CPI) averaged 2.04%, and that of the core CPI (excluding vegetables, fruit, and energy items) averaged 1.65%, both continuing to come down gradually.

Regarding the inflation outlook for the second half of the year, services inflation would likely maintain a gradual downtrend, and international crude oil prices this year are expected to come below the levels of last year, both of which would help inflationary pressures to soften further. The Bank therefore revised down its forecasts for the CPI and the core CPI annual growth rates to 1.81% and 1.69% in 2025, respectively (see Appendix Table for the 2025 forecasts by major institutions), lower than the 2024 figures of 2.18% and 1.88%. Key drivers for future domestic inflation trends include international commodity prices, domestic services prices, and weather factors.

3. Domestic market liquidity remains ample, and both long- and short-term market interest rates have fluctuated within a narrow range in recent months. Excess reserves in the banking system averaged somewhat above NT$45 billion in the period of March to May this year. For the first five months of the year, the average annual growth rate of the monetary aggregate M2 (measured on a daily average basis) was 4.45% and that of bank loans and investments was 7.20%, both 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. The domestic inflation rate is on track to drop to below 2% and the domestic economy is expected to expand at a moderate pace. Nonetheless, uncertainty facing the global economic outlook remains elevated. Against this background, the Board, taking a prudent approach to the influence of evolving developments including U.S. economic and trade policies, 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 closely monitor incoming information on uncertainty factors, including U.S. tariff policy developments, the pace of monetary policy adjustments by major central banks, China's economic downturn risk, geopolitical conflicts, and extreme weather, and their implications for Taiwan's economic activity, financial conditions, and price trends. 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. The Bank adopted moral suasion in mid-August 2024 by asking banks to enhance internal quantitative controls of real estate lending in aggregate over the coming year (2024Q4 - 2025Q4). The Bank then made the seventh amendment to its selective credit control measures in September 2024.

Since the imposition of these policies, the loan brackets under the credit controls have witnessed lower loan-to-value (LTV) ratios; consumer expectations for housing price rises have eased, housing market transactions have continued to cool down, and the housing price uptrend has slowed. Meanwhile, domestic banks have recorded an increase in housing loans to non-homeowner borrowers as a share of total housing loans. In recent months, there have also been a further slowdown in the annual growth rates of banks' housing loans and construction loans. The ratio of real estate lending to total lending of all banks (a measure of concentration of real estate lending) has generally declined to 37.1% as of the end of May this year.

Going forward, the Bank will keep 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 with the Bank's rules and regulations. 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.