Monetary Policy Decisions of the Board Meeting
PRESS RELEASE Release Date: March 27, 2014
Monetary Policy Decisions of the Board Meeting
At the meeting today, the Board decided unanimously to maintain the discount rate, the rate on accommodations with collateral, and the rate on accommodations without collateral at their current levels of 1.875%, 2.25%, and 4.125%, respectively.
I.The interest rate decisions are based on the following:
1.Driven by moderate economic growth in the US and Europe, the global economy will continue on a path towards recovery this year. Nevertheless, the Chinese economy slowed down as it sought structural rebalancing. The US Fed's decision to further scale back its asset purchase program could bring about cross-border spillover effects and heighten international financial market volatility. These developments might complicate the outlook for the global economy.
2.Meanwhile, Taiwan posted moderate export growth, slower private investment and steady private consumption growth. The Directorate-General of Budget, Accounting, and Statistics (DGBAS) forecasts the domestic economy to expand 3.02% in the first quarter of 2014. The forecast for the entire year is 2.82%, up from the 2.11% of the previous year.
In terms of labor market conditions, employment continued to rise as companies increase hiring, particularly the service sector. The unemployment rate was 4.09% in February 2014 and generally on a gradual downtrend.
3.Earlier this year, adverse supply-side factors such as unfavorable weather conditions and diseased piglets led to higher prices of fruits, rice and meat. The increase was partially offset by the decline in the prices of vegetables, durable consumption goods, and telecommunication. For the first two months of the year, the CPI annual growth rate averaged merely 0.39%.
Global inflation expectations are mild in the context of less volatile international oil prices. In addition, domestic demand was muted and the output gap was still negative. Taking these factors into consideration, the DGBAS forecasts a stable outlook for Taiwan's inflation with the CPI annual growth rate to average 1.07% for the year 2014.
4.Against the backdrop of an economic recovery, the CBC has continued to manage market liquidity to maintain excess reserves of banks at an appropriate level. The overnight interbank call-loan rates remained broadly stable, and the growth of the monetary aggregate M2 stayed within the target range. The annual growth rates for the first two months of the year were 4.94% for bank loans and investments and 5.79% for M2, both sufficient to support economic activity and foster growth.
Based on its assessment of moderate growth and mild inflation outlook in the domestic economy and lingering uncertainties in the global economy, the Board judges that the current policy stance is appropriate and a policy rate hold will help maintain price and financial stability and foster economic growth. Looking ahead, the CBC will continue to closely monitor price trends and the output gap, as well as the economic and financial developments both at home and abroad, and undertake appropriate monetary policy actions in a timely manner.
II.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.