Monetary Policy Decision of the Board Meeting
PRESS RELEASE Release Date: March 28, 2013
Monetary Policy Decision of the Board Meeting
I. At the meeting today, the Board decided unanimously 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:
1. In the year to date, several major economies have continued with monetary easing, while the global economy recovers at a moderate pace. On the other hand, re-emerging financial strains in Europe and the ongoing US fiscal uncertainty present risks to the steady growth of the world economy.
Global inflationary pressures were subdued as soft demand restrained international oil and other commodity price hikes amid a moderate recovery.
2. In Taiwan, the economy has gradually picked up since the fourth quarter last year with better-than-expected performance in exports and private consumption. The Directorate-General of Budget, Accounting, and Statistics (DGBAS) revised up its first quarter GDP forecast to 3.26% in February. Bolstered by the world's moderate economic expansion, exports and private investment will likely drive the domestic economy to grow by 3.92% in the second quarter and 3.59% for the entire year. Labor market conditions have improved further. Unemployment rate edged down from 4.40% in August 2012 to 4.16% this January, notwithstanding a slight upswing to 4.24% due to a seasonal factor with a surge of job-change seekers after the Chinese New Year, which fell in February this year.
3. For the first two months of the year, the CPI annual growth rate averaged 2.05%, but the core CPI (excluding vegetables, fruits, and energy) grew merely 1.25%. The DGBAS projected a 1.99% inflation rate for the first quarter. Recent falls in international commodity prices, combined with a higher base effect from last year's fuel and electricity prices hikes and weather-induced fruit and vegetable price rises, would bring inflation lower to 1.40% in the second quarter and 1.37% in 2013 as a whole.
4. Against the backdrop of an economic recovery, the Bank has conducted open market operations to maintain market liquidity at an appropriate level. In January and February, the average excess bank reserves amounted to NT$33.2 billion. Recently, the overnight interbank rates remained broadly stable at around 0.387%. The annual growth rates for the first two months of the year were 5.65% for bank loans and investments and 3.26% for M2, both sufficient to support economic growth.
In sum, global economic uncertainties remain and Taiwan's economy is experiencing a mild recovery along with muted inflationary pressures. Taking these into account, the Board judged that the current policy stance will remain appropriate and consistent with the Bank's statutory mandate of maintaining price and financial stability and fostering economic growth. The Board will continue to closely monitor the economic and financial developments both at home and abroad and undertake appropriate monetary policy actions in a timely manner.
III. The Bank has implemented targeted prudential measures against land collateralized loans and high-value housing loans as well as mortgage lending in the ''specific areas'' as stipulated in the relevant regulations. These efforts were meant to strengthen banks' risk control and have successfully brought down the average loan-to-value ratio in the ''specific areas'' to 57% and led the average mortgage rate upwards to above 2%.
In recent months, the Bank further called for banks' self-discipline to help rein in real-estate associated credit risk and apply prudent lending standards in areas not yet designated as ''specific'' but already showing a noticeable uptrend in housing prices.
The Bank will keep close watch on incoming data on real-estate lending and urge financial institutions to ensure sound operation, with a view to preserving financial stability.
IV. The NT dollar exchange rate is in principle determined by market forces. Nevertheless, when seasonal or irregular factors (such as massive inflows or 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.