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 rate decision is based on the following:

1.     The pace of recovery has been uneven across economies. The US and Japan both experienced moderate economic expansion, while the European economy remained weak. China and Asian emerging economies delivered less-than-expected performance. Meanwhile, global inflation is mild.

In addition to massive short-term capital movements around the world, international financial markets were also rattled by a looming US Fed policy normalization and bank liquidity concerns in China, clouding the global economic outlook.

2.     In Taiwan, export growth continued to be dampened by weak external demand, and private consumption also showed lackluster growth. As a result, Taiwan's economy grew modestly by 1.67% year on year in the first quarter of 2013. However, the domestic economy is expected to gradually pick up over the following quarters should global economic conditions improve in the second half of the year. According to the May forecast by the Directorate-General of Budget, Accounting, and Statistics (DGBAS), Taiwan's economy will grow at a pace of 2.40% in 2013. In terms of labor market conditions, employment continued to increase and the unemployment rate declined further.

3.     For the first five months of the year, the CPI annual growth rate averaged 1.45%. As international raw material prices have been stable, coupled with sluggish private consumption and a higher base effect, the DGBAS projected mild inflation of 1.14% for the second half of 2013 and 1.23% for the year as a whole.

4.     The Bank has continued to manage market liquidity to maintain excess reserves of banks at an appropriate level. For the first five months of the year, the average excess bank reserves amounted to NT$34.2 billion. The annual growth rates of bank loans and investments and of M2 for the same period were 5.64% and 3.67%, respectively, sufficient to support economic activity and foster growth.

Based on an assessment of lingering global economic uncertainties, a mild recovery of the domestic economy and subdued inflationary pressures, the Board judged that the current policy stance is conducive to price and macroeconomic stability. 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. With effective implementation of the Bank's targeted prudential measures for real-estate lending, the average loan-to-value ratio in the ''specific areas'' identified in the aforesaid policy measures has declined to 57%, and the average mortgage rate has risen to above 2.1%.

Furthermore, following the March Board Meeting, where banks were urged to strengthen risk management for real-estate lending in ''non-specific areas'' with considerable housing price surges, it is found that most banks have formulated internal rules and procedures for self-discipline in this regard, such as raising mortgage rates, lowering loan-to-value ratios, and removing grace periods. The Bank will continue to keep close watch on banks' risk management for real-estate lending.

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 Bank, committed to fulfilling its mandate under the Central Bank of the Republic of China (Taiwan) Act,＊ will step in to maintain an orderly market.