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Central Bank of the Republic of China

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Monetary Policy Decisions of the Board Meeting

Central Bank of the Republic of China (Taiwan)
PRESS RELEASE Release Date: March 22, 2012

Monetary Policy Decisions of the Board Meeting
I. At the meeting today, the Board decided, with unanimous approval by the Board members, 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. Recent international economic conditions show some signs of stabilization for the global economy, especially with renewed progress in the Greek sovereign debt restructuring efforts and a moderate expansion of the US economy. However, the European economy remains lackluster and activity in emerging economies is losing steam. In addition, international oil prices stay high and vulnerabilities still exist in the financial systems of advanced economies. Against such a backdrop, it is widely expected that the global growth will be somewhat slower than last year.
2. On the domestic front, private investment was adversely affected by slack external demand that has weakened since the second half of last year. The Directorate-General of Budget, Accounting, and Statistics (DGBAS) forecast that in the year of 2012, the annual GDP growth rate of the first quarter would record a yearly low. However, the momentum is expected to gradually pick up in the subsequent quarters to expand by 3.85% in 2012 as a whole, slightly lower than last year's 4.04%.
In the labor market, the number of persons employed continued to increase and unemployment rate exhibited a gradual downtrend.
Domestic inflation was generally mild as the CPI annual growth rate averaged 1.31% for the first two months of the year. For the entire year, the DGBAS projected the CPI to increase by 1.46% on average. However, close attention is called for to monitor inflation developments, in view of (1) a lower base effect, and (2) the threat of higher oil prices driven by geopolitical tensions in the Middle East and excessive market speculation.
3. The CBC continues to issue certificates of deposit (CDs) to absorb excess liquidity and to keep in check banks' excess reserves, which stood at NT$15.9 billion as of this February. Financial conditions in Taiwan remained stable. For the month of January, the average annual growth rate of bank loans and investments was 5.20%, and the M2 annual growth rate was 5.22%. Market liquidity has been sufficient to fully meet the needs of domestic economic activity.
In an environment of ample excess savings, foreign capital inflows and relatively stable domestic inflation, the interest rates remain at low levels. Compared with selected economies around the world, Taiwan's real interest rate is higher than the majority of these countries.
As the domestic economy grows at a moderate pace and upward pressure is likely to occur in the future course of inflation, the Board judges that a rate hold is consistent with the CBC's mandated objectives to maintain price and financial stability. In the future, the CBC will continue to closely monitor both how the global and domestic economic and financial conditions evolve, and undertake appropriate monetary policy actions in a timely manner as warranted.
III. 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 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.

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