Monetary Policy Decisions of the Board Meeting
PRESS RELEASE Release Date: September 29, 2011
Monetary Policy Decisions of the Board Meeting
I. At the meeting today, the Board reached the following decision:
1. The Board decided to keep the discount rate, the rate on accommodations with collateral, and the rate on accommodations without collateral unchanged at 1.875%, 2.25%, and 4.125%, respectively.
II. The decision is based on the following considerations:
1. As European countries struggle to resolve the sovereign debt crisis and the US economy continues to be mired in the political stalemate over fiscal consolidation, a faltering housing market, and high unemployment, lingering concerns have dampened investor and consumer confidence and rattled international financial markets. Global economic and financial uncertainties have increased due to an interplay of weak economic growth and deteriorating financial conditions. Accordingly, most economic forecasters have recently revised down their global growth projections for 2011 and 2012.
On the other hand, global inflation is expected to subside entering the fourth quarter this year, as a result of falling prices of international crude oil and some commodities from their previous peaks.
2. Taiwan's economy exhibited strength in the first half of this year, growing by 5.58% year on year. Nonetheless, weaker external demand since the beginning of the second half of the year has caused some moderation in exports, export orders, and industrial production, and also subdued private investment.
In view of tepid economic activity among Taiwan's major trading partners, the Directorate-General of Budget, Accounting, and Statistics (DGBAS) revised down its forecast for Taiwan's economy, projecting it to expand 4.11% in the second half of the year, and 4.81% for the year as a whole, followed by 4.58% in 2012. In terms of labor market conditions, despite a marginal rise in unemployment rate due to seasonal factors, the number of persons employed has continued to grow.
3. Pressures of imported inflation have eased, as international prices of oil and other commodities declined. Both domestic inflation and inflation expectations have trended downwards, translating into an annual CPI growth rate of 1.34% in August. According to the DGBAS projection updated in August, Taiwan's CPI inflation will increase 1.75% in the second half of the year and will average at 1.59% in 2011 and grow by 1.21% in 2012, all lower than the agency's previous forecasts. Compared to many other economies, Taiwan's inflation is relatively low and stable.
4. The five recent policy rate hikes by the CBC have guided banks' overnight call-loan rates to rise steadily. In order to step up the efforts of absorbing longer-term excess liquidity, the CBC has carried on with the issuance of 364-day NCDs, bringing down banks' net excess reserves to the level of NT$9.9 billion in August. Bank credit was on the rise. For the first eight months of the year, the M2 annual growth rate averaged 6.01%, a level still within the 2011 target range (2.5%-6.5%) and conducive to price stability.
Overall, global economic uncertainties may adversely impact Taiwan's economic growth, while inflation expectations have abated. Against this background, the Board judges that maintaining policy rates at current levels would help sustain sound economic and financial development in Taiwan. Looking ahead, the CBC will continue to monitor economic and financial conditions at home and abroad, and adopt monetary policy as warranted to ensure price stability and help promote economic growth.
III. Since the June Board Meeting, the situation of over-concentration on real-estate-related lending by banks has kept improving. As a result, the pickup in the housing market has become restrained. The Board believes the cross-agency efforts under the government's ''Plan to Enhance the Soundness of the Housing Market'' have been effectively implemented in support of a healthier housing market.
IV. Taiwan adopts a managed float regime, and the NT dollar exchange rate is in principle determined by market forces. Nevertheless, when seasonal or irregular factors (such as massive inflows and outflows of short-term capital) lead to excess volatility (either appreciation or depreciation) and disorderly movements in the NT dollar exchange rate with adverse implications for economic and financial stability, the CBC will step in to maintain an orderly market.