Monetary Policy Decisions of the Board Meeting

I. At the meeting today, the Board reached the following decisions unanimously:

1. The Board decided 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.

2. The Board has taken into account the outlook for economic growth and price trends and set the target range of M2 growth at 2.5% to 6.5% for 2015, same as this year's.

II. The interest rate decision is primarily based on the following:

1. Recent economic conditions pointed to an uneven pace of recovery among major economies. While the US economy showed relative strength, the euro area and Japan were both slackening and emerging economies such as China experienced a slowdown. The situation has brought about monetary policy divergence among major economies, which in turn contributed to increased volatility in international financial markets. Uncertainties still linger in the global economy. Many international agencies have trimmed their forecasts of the global economic growth for next year, albeit to levels still higher than this year's.

In the meantime, a significant decline in international oil prices recently held down inflation across economies and could be helpful to the global economic recovery.

2. The global economic conditions have led Taiwan's export growth to slightly moderate since October. Meanwhile, private consumption was dampened by domestic food safety issues. Against such a backdrop, the Directorate-General of Budget, Accounting, and Statistics (DGBAS) forecasts Taiwan's economy to grow by 2.83% for the fourth quarter, down from the 3.63% of the previous quarter. As a pickup in the global economy next year is expected to bolster growth in exports and private investment, the DGBAS projects the economic growth to edge up from 3.43% in 2014 to 3.50% in 2015.

Labor market conditions continued to improve. Employment increased steadily on the back of rising corporate profits. The unemployment rate was 3.95% in October, and the real wage growth of non-farm employed persons averaged 3.02% for the first nine months of the year.

3. Inflation has been subdued by falling international oil prices since September. The CPI annual growth rate registered 0.86% in November and averaged 1.26% for the first eleven months. According to the DGBAS, inflation is forecast to reach 1.18% for this year as a whole and to decrease to 0.91% in 2015 with muted domestic inflationary pressures.

4. The CBC has continued to conduct open market operations to maintain market liquidity and excess reserves at an appropriate level. The overnight interbank call loan rates remained broadly stable, bank credit expanded steadily, and the growth of the monetary aggregate M2 stayed within the target range. The annual growth rates for the first eleven months of the year were 4.93% for bank credit and 5.64% for M2.

5. Based on the assessment of moderate growth in the global economy, a negative domestic output gap, and mild inflation expectations, the Board judges that the current policy rate level and the 2015 M2 growth target range (2.5% to 6.5%) will help maintain price and financial stability and foster economic growth. Looking ahead, the CBC will continue to closely monitor the economic and financial developments both at home and abroad and undertake proper monetary policy actions, when warranted, to fulfill its legal mandates.

III. Since the Board meeting in June this year, when measures were introduced to further enhance banks' real estate-related risk management, concentration of real estate lending in banks' loan portfolios has eased. Banks were also found to have granted loans for housing at lower loan-to-value ratios and higher interest rates (See the appended figures). This is conducive to sound banking operation and to the attainment of financial stability. Going forward, the CBC will continue to work with relevant authorities to ensure sound development of the housing market.

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.

Appendix

Explanatory notes on the M2 growth target for year 2015

1. By incorporating the DGBAS' latest projections of economic growth (3.50%) and CPI inflation (0.91%) for 2015 into the simulation, together with opinions and suggestions from scholars and experts, the CBC estimates the annual increase in the demand for M2 will be 4.42% in 2015. Using an increment of 0.5 percentage point and rounding off to 4.5% with a bound of ±2 percentage points to account for the uncertainty factor and error estimates, the M2 growth target range for 2015 is set at 2.5% to 6.5%.

2. In view of the projected moderate growth in the domestic economy and subdued inflationary pressures next year, as well as the divergence in the monetary policy stances of major economies and lingering uncertainties in the global economic and financial conditions, the CBC decides to keep the M2 growth target range unchanged, which is judged to be sufficient to fully meet the needs of domestic economic activity.