Monetary Policy Decision of the Board Meeting (2026 Q2)

1. Global economic and financial conditions

Since the Board met in March this year, investment in artificial intelligence (AI) and related technologies has continued to expand, supporting further growth in global manufacturing activity. Nevertheless, the conflict in the Middle East has disrupted global energy supplies. With expectations of international crude oil and other commodity prices to remain elevated, pushing up global inflationary pressures and weighing on global demand, major 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. More recently, following the announcement of the preliminary agreement reached between the U.S. and Iran, crude oil prices have declined significantly.

In recent months, the European Central Bank has pivoted toward a policy rate hike, while the Bank of Japan has resumed raising policy rates. Although the U.S. Federal Reserve has kept its policy rate unchanged, it has signaled a turn towards tightening. The People's Bank of China has maintained its loose monetary policy stance. Meanwhile, recent market expectations of shifts in the monetary policy stance of major central banks, together with concerns over possible overvaluation of AI-related stocks, have heightened volatility in global financial markets.

Looking ahead, developments in the Middle East conflict, the future course of monetary policy among major central banks, the evolution of U.S. economic and trade policies, and the prospects for AI-related industries could add to uncertainties surrounding the global economic and financial outlook.

2. Domestic economic and financial conditions

1. With robust growth in exports and steady expansion in private investment on the back of strong demand for AI and other emerging technology applications, combined with a pickup in private consumption, the domestic economy performed significantly better than expected in the first quarter of this year and is projected to continue expanding at a remarkably solid pace in the second quarter. Regarding labor market conditions during the first four months of the year, the average unemployment rate declined year on year and the number of employed persons increased, alongside mild wage growth.

Looking ahead to the second half of the year, the ongoing broadening of the adoption of emerging technology applications are likely to sustain solid export growth and drive private investment momentum, while the improvement in private consumption growth would also likely continue. The Bank revised up its forecast for Taiwan's GDP growth rate to 9.45% (see Appendix Table 1 for the forecasts by major institutions).

2. For the first five months of the year, the annual growth rate of the consumer price index (CPI) averaged 1.52% and that of the core CPI (excluding vegetables, fruit, and energy items) averaged 1.96%.

In regard to the inflation outlook for the year as a whole, major foreign institutions have revised up their forecasts for this year's international oil prices. Meanwhile, domestic import prices have continued rising, and services inflation has shifted into an upturn. After taking into account the effect of the government's energy price stabilization measures, the Bank revised its all-year inflation forecasts slightly upward to 1.91% and 1.90% for the CPI and core CPI annual growth rates, 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. In recent months, both short- and long-term market interest rates drifted up, but domestic market liquidity remained ample. Excess reserves in the banking system averaged above NT$50 billion for the period from March to May this year.

Amid brisk trading in the local equity markets, retail investors have stepped up borrowing to finance their equity securities investment. Consequently, the balance of banks' loans to individuals for financial investment and financing provided to private securities, futures, and financial auxiliary industries has witnessed a sharp increase since the start of the year. Banks are advised to be attentive to credit expansion and risk management associated with these activities.

For the first five months of the year, the annual growth rate of the monetary aggregate M2 (measured on a daily average basis) averaged 6.12% and that of bank loans and investments averaged 7.94%, higher than their respective yearly averages of 4.54% and 6.66% registered in 2025.

3. The Board decided 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. With the domestic inflation outlook projected to remain moderate and the domestic economy expected to post solid growth, the Bank, taking a prudent approach to the uncertainty surrounding the global economic and financial outlook and the potential impact of the Middle East conflict on domestic prices and the economy, 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 uncertainty factors such as the situation in the Middle East, the monetary policy paths of major central banks, the development of the AI ecosystem, changes in the U.S. economic and trade policies, 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 to fulfill the statutory duties of maintaining financial and price stability and fostering economic development within the scope of the aforementioned objectives.

4. In March this year, the Bank introduced a moderate adjustment to the cap on the loan-to-value (LTV) ratio for a natural person's second housing loan. Thereafter, domestic banks have recorded a further increase in housing loans to non-homeowners 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. Meanwhile, consumer expectations for housing price rises remain soft, housing market transactions have cooled, and the housing price uptrend has moderated.

The ratio of real estate lending to total lending of all banks (a measure of concentration of real estate lending) has further declined from the peak of 37.6% recorded at the end of June 2024 to 35.2% as of the end of May this year. In the meantime, the balance of real estate loans continued to build up, while other loan categories (i.e., total loans excluding real estate loans) saw a greater increase in their combined balance than that in the real estate loan balance, with significant expansion in equity investment-related lending.

The Bank's selective credit control measures were implemented to curb excessive concentration of bank credit on the real estate market and to help channel credit resources toward supporting productive economic activities. Going forward, the Bank will continue to review banks' internal quantitative management of aggregate real estate lending and monitor the allocation of credit resources to productive economic activities. Meanwhile, the Bank will also keep 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, when irregular forces (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 will, consistent with its statutory duties, step in to maintain an orderly market.