Monetary Policy Decision of the Board Meeting (2026 Q3)

1. Global economic and financial conditions

Since the Board met in June this year, rising investment in artificial intelligence (AI) and related technologies has contributed to further expansion in global manufacturing activity and sustained and moderate growth in the global economy. Amid geopolitical tensions in the Middle East, international crude oil and other commodity prices have remained elevated and global inflationary pressures have persisted.

From June onwards, the European Central Bank has implemented policy rate hikes twice, and the Bank of Japan has resumed raising policy rates. The U.S. Federal Reserve has pivoted toward a policy rate increase, while the People's Bank of China has maintained its loose monetary policy stance. In the meantime, market attention on the pace of monetary policy adjustments and fiscal soundness in major economies, as well as the profitability of AI-related investment, have induced greater volatility in global financial markets.

Looking ahead, international institutions currently forecast that as the impact of the energy shock subsides, global economic growth is likely to rebound and global inflation is projected to decline next year. Nevertheless, the global economic and financial outlook faces numerous uncertainties, including possible impacts arising from developments in the Middle East conflict, the future course of monetary policy among major central banks, the prospect for AI-related industries, and the shift in U.S. economic and trade policies.

2. Domestic economic and financial conditions

1. The domestic economy performed better than expected in the first half of the year, expanding by 14.15% over the same period a year ago. From July onwards, bolstered by continuous and strong demand for AI and other emerging technology applications, exports grew significantly and private investment also increased further, while private consumption posted sustained growth. The Bank revised up its forecast for Taiwan's GDP growth rate to 9.09% for the second half of this year and 11.48% for the year as a whole (see Appendix Table 1 for the forecasts by major institutions). Regarding labor market conditions in recent months, the number of employed persons continued to rise, the unemployment rate declined year on year, and wages grew mildly.

Looking ahead to next year, robust demand for emerging technology applications is likely to persist, which will continue to boost exports and private investment. Meanwhile, with possible hikes in public sector pay and minimum wage, private consumption is expected to rise further. However, the Bank forecasted that a higher base effect would lead the economic growth rate to register 5.82% next year.

2. For the first eight months of the year, the annual growth rate of the consumer price index (CPI) averaged 1.84% and that of the core CPI (excluding vegetables, fruit, and energy items) averaged 2.11%. Given that international oil prices remained elevated and that services inflation stayed high and showed downward rigidity, the Bank revised upward its forecasts for Taiwan's CPI and core CPI inflation rates to 2.03% and 2.16%, respectively (see Appendix Table 2 for the forecasts by major institutions).

Regarding the inflation outlook for next year, as major foreign institutions currently projected that international oil prices would decline from the levels this year, upward pressures on domestic fuel and lubricant prices and air fares would likely ease somewhat subsequently. Meanwhile, consumer demand was expected to be mild. The Bank therefore forecasted that for next year the CPI and core CPI inflation rates will slow to 1.83% and 1.89%, respectively, with most domestic and foreign institutions also expecting a decline in Taiwan's 2027 CPI inflation rate (Appendix Table 2). However, international geopolitical risks and weather factors could affect future domestic inflation trends.

3. The ongoing global AI demand boom has driven investment and operating activities across related industries at home, resulting in an increase in corporate funding demand for working capital. Meanwhile, local stock market buoyancy has also led to stronger needs for loans to retail borrowers for financial investment. Against this backdrop, the average annual growth rate of loans and investments of all banks rose to 8.23% for the first seven months of this year, taking the annual growth rate of M2 to an average of 6.60% for the same period.

Short- and long-term market interest rates both drifted up in recent months, reflecting the significant increase in domestic funding needs and a net foreign capital outflow. The Bank continued to manage market liquidity through open market operations. Excess bank reserves averaged above NT$52 billion for the period from June to August this year, suggesting still ample liquidity in the banking system.

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. Domestic inflation was expected to remain contained this year and would likely ease to below 2% next year, and the domestic economy was projected to expand at a solid pace. Against this background, and 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, 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 domestic inflation trends, the extent of monetary policy tightening by major central banks, domestic financial conditions, and the implications of other uncertainty factors – such as the prospects of AI applications, impacts from the U.S. economic and trade policies, and extreme weather – for Taiwan's economic activity. The Bank will adjust its monetary policy accordingly in a timely manner to fulfill the statutory duties of maintaining financial and price stability while fostering economic development within the scope of the aforementioned objectives.

4. The Board decided to adjust the selective credit control measures

Since the Bank's moderate adjustment in March this year to the cap on the loan-to-value (LTV) ratio for a natural person's second housing loan, domestic banks have continued to reinforce real estate credit risk management, with signs of further improvement in the disproportionate credit flow into the real estate market. At the end of July 2026, the ratio of real estate lending to total lending of all banks (a measure of concentration of real estate lending) has declined to 34.44% from 35.56% at the end of March 2026, representing also a decline of 3.17 percentage points from the recent peak of 37.61% recorded at the end of June 2024. In the meantime, domestic banks have recorded a continued 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. Housing market transactions have been cooling off, with speculative activity decreasing; consumer expectations for housing price rises have also softened.

Considering that the selective credit controls are showing effectiveness and that financial institutions' reinforcement of real estate credit risk control have produced positive results, the Bank decided to make moderate adjustments to the credit controls and to amend the Regulations Governing the Extension of Mortgage Loans by Financial Institutions accordingly, effective September 18, 2026 (see Appendix). Major amendments included the following:    

(1) To more aptly support the need to purchase owner-occupant housing for borrowers themselves or their family, the Bank decided to adjust the LTV ratio cap on a natural person's second housing loan, raising it from 60% to 70%. 

(2) Regarding land loans, which are subject to the rules introduced in December 2021 by the Bank that such loans should be accompanied by a written affidavit specifying the timeframe to commence construction, it has been observed that banks have demonstrated prudence in underwriting such loans while requesting and verifying the loan cases' construction schedules. Given these developments and in view that the relevant rules may serve well under banks' own credit extension practices, the Bank decided to remove the requirement of submitting ''a written affidavit specifying the timeframe to commence construction.''    

Going forward, the Bank will continue to conduct rolling reviews of the credit control measures and make timely adjustments as warranted in order to foster 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.