Monetary Policy Decision of the Board Meeting (2026Q1)

1. Global economic and financial conditions

Since the Board met in December last year, rising investment in artificial intelligence (AI) and related technologies has contributed to continued expansion in global manufacturing activity and sustained moderate growth in the global economy. With the recent outbreak of the conflict in the Middle East, international oil prices have surged, which could pose an upside risk to global inflation and dampen global demand. International institutions have therefore revised their forecasts downward for the global economic growth rate this year, while raising their projections of the global inflation rate.

In the year so far, the U.S. Federal Reserve, the European Central Bank, and the Bank of Japan have kept their policy rates on hold, while the People's Bank of China maintains a loose policy stance. The recent changes in U.S. tariff policies and developments in the Middle East conflict have induced greater volatility in global financial markets.

Looking ahead, geopolitical tensions in the Middle East and the evolution of U.S. economic and trade policies could disrupt global trade and investment activity. Meanwhile, the future paths of monetary policy adjustments by major central banks could shift international capital flows. These factors, along with the development in AI-related industries, could add to uncertainties surrounding the global economic and financial outlook.

2. Domestic economic and financial conditions

1. Developments since the beginning of this year pointed to robust export expansion and sustained private investment growth, bolstered by a continued boom in AI and other emerging technology applications. Meanwhile, a rebound in consumer confidence boosted private consumption. Regarding labor market conditions in recent months, the number of employed persons increased further, the unemployment rate continued trending down, and wage increased mildly.

For the economic outlook this year, it is likely that the proliferation of commercial applications of emerging technologies would continue to buttress Taiwan's export strength and drive up private investment, while private consumption growth is also expected to pick up. The Bank revised up its forecast for Taiwan's GDP growth rate to 7.28% (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 1.23% and that of the core CPI (excluding vegetables, fruit, and energy items) averaged 1.93%, both indicating still moderate inflation.

For this year as a whole, the effect from price cuts in some commodities after the implementation of commodity tax reduction/exemption would likely continue and services prices are expected to maintain a gradual downtrend. However, the recent Middle East conflict has pushed up international crude oil and other commodity prices. The Bank, taking into account the government's efforts through the energy price stabilization mechanism, revised up its forecasts for this year's CPI and core CPI annual growth rates to 1.80% and 1.75%, respectively (see Appendix Table 2 for the forecasts by major institutions). Key drivers for future domestic inflation trends include international geopolitical risks and weather factors.

3. Domestic market liquidity remained ample, and both long- and short-term market interest rates fluctuated within a narrow range in recent months. Excess reserves in the banking system averaged around NT$56 billion for the first two months this year. For this period, the annual growth rate of the monetary aggregate M2 (measured on a daily average basis) averaged 5.27% and that of bank loans and investments averaged 7.04%.

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 outlook was projected to remain moderate this year and the domestic economy was expected to post solid growth. Taking a prudent approach to the uncertainty surrounding the global economic and financial outlook and the potential impact of the Middle East conflict and U.S. economic and trade policies on domestic prices and the economy, 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 closely monitor the implications of uncertainty factors – including geopolitical risks, the impact of U.S. economic and trade policies, the pace of monetary policy adjustments by major central banks, the development of AI-related industries, and extreme weather – 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 Board decided to adjust the selective credit control measures

In September 2024, the Bank made the seventh amendment to its selective credit control measures. Meanwhile, financial institutions continued with their respective internal quantitative management of aggregate real estate lending. With these efforts, 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 annual growth rate of housing prices has come down. Data also show that housing loans granted by domestic banks to non-homeowners have continued to increase as a share of total housing loans. Loans for urban renewal and reconstruction of unsafe and dilapidated housing have also been rising as a share of construction loans.

The ratio of real estate lending to total lending of all banks (a measure of concentration of real estate lending) has declined from the peak of 37.6% recorded at the end of June 2024 to 36.0% as of the end of February this year. The annual growth rate of real estate loans of all banks has dropped from its end-September 2024 peak of 9.4% to 3.7% at the end of February this year. In particular, the annual growth rate of housing loans has decreased from a high of 11.3% at the end of September 2024 to 4.5% at the end of February 2026, and that of construction loans has also trended down to 1.5% at the end of this February. These data trends indicate an improvement in the previously-observed overflow of bank credit resources towards the real estate sector.  

In sum, the gradual manifestation of policy effectiveness has been observed and financial institutions have continued with enhanced management of credit risk associated with real estate lending. Consequently, speculative activity in the housing market has declined. In addition, the Bank took into account public petitions that natural persons' second housing loans might be taken out simply to meet the need for owner-occupant housing for their family or themselves. Therefore, the Bank decided to introduce moderate adjustments to the LTV ratio cap on a natural person's second housing loan, raising it from 50% to 60%. Accordingly, the Regulations Governing the Extension of Mortgage Loans by Financial Institutions will be amended, taking effect from March 20, 2026 (See Appendix).

Going forward, the Bank will continue to require financial institutions to submit data reports on real estate lending on a monthly basis and will also strengthen its efforts in targeted financial examinations, so as to ensure banks' compliance with the selective credit control measures and to monitor the status of their internal quantitative management of aggregate real estate lending. At the same time, the Bank will keep close watch on potential impacts of real estate sector-related policies on the housing market, conduct rolling reviews of the effectiveness of the selective credit control measures, 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, uncertainty from the recent Middle East conflict has heightened volatility in international financial markets, with potentially adverse implications for the domestic foreign exchange market and financial market stability. The Bank will closely monitor capital movements and, consistent with its statutory duties, step in to maintain an orderly market.