Monetary Policy Decision of the Board Meeting

I.        Global economic and financial conditions

Since the Board met in late September this year, the global economy has experienced synchronized growth and will move into next year with a similar outlook. Among major economies, the US economy is expected to post mild expansion, while the euro area and Japan might show some signs of moderation. Growth in China and the ASEAN economies could grow at a slightly slower pace.

Recently, central banks in advanced economies such as the US and the UK have been on the path toward gradual normalization of monetary policy, whereas Japan and most emerging market economies have continued with an accommodative monetary policy stance. The divergent path of monetary policy in major economies, the developments and impact of the US economic and trade policies, rising trade protectionism, and geopolitical risks will all add to the uncertainties surrounding the global economic and financial outlook.

II.      Domestic economic and financial conditions

1.    Exports and industrial production both recently recorded continuous expansion, while private consumption rose mildly. Nevertheless, growth momentum for private investment remained subdued. The CBC forecasts the domestic economy to advance by 2.41% in the fourth quarter 2017 and 2.61% for the entire year. Labor market conditions were stable with employment continuing to increase and the unemployment rate declining further.

For the year of 2018, on the back of an anticipated steady recovery in the world economy, momentum for exports and private investment is likely to sustain. In addition, private consumption is expected to remain stable, and government spending may register continued growth. As a result, the CBC projects Taiwan's economy to advance 2.35% for 2018.

2.    In recent months, a continued upturn in international oil prices has pushed up domestic import prices. However, NT dollar appreciation has helped ease the pressure on imported inflation. Meanwhile, the stable rates on basic cost of living as well as a higher comparison base of vegetables and fruit prices contributed to a smaller increase in CPI. The CBC forecasts CPI and core inflation (excluding vegetables, fruit, and energy items) for 2017 to average 0.61% and 1.02% year on year, respectively, suggesting that current inflation is rather stable.

Looking ahead to 2018, private sector might raise wages in step with the hikes in minimum wage and public sector employee pay, which could provide a thrust to prices. However, in the context of mild increases in international oil prices, moderate domestic demand, and the output gap remaining negative, the CBC projects CPI and core CPI to both rise at a pace of 1.12% year on year in 2018, reflecting a mild inflation outlook (see Table 1 in Appendix 1).

3.    Against a backdrop of stable inflation and economic recovery, the CBC has continued to manage market liquidity and help maintain banks' excess reserves at an appropriate level. For the first eleven months of the year, bank credit registered steady growth with bank loans and investments expanding by 4.79% year on year, while the monetary aggregate M2 posted an average annual growth rate of 3.76%. This suggests there is ample market liquidity to support economic activity.    

In recent months, both short- and long-term market interest rates have held steady, and the domestic stock prices have stayed elevated, whereas the NT dollar has strengthened against the US dollar. Overall, the financial condition index has pointed to slightly tighter financial conditions.  

III.    Monetary policy decisions

In sum, uncertainties still cast a shadow over next year's global economic outlook. The domestic economic growth is likely to pick up moderately, while the output gap remains negative. Both current inflationary pressures and future inflation expectations are anchored. The financial conditions have experienced some strains, while Taiwan's real interest rate stands at an appropriate level among major economies (see Table 2 and Figure 1 in Appendix 1). In light of the above developments, the Board judged that maintaining the policy rates and the M2 target range unchanged will help to foster a stable financial environment and achieve sustained economic growth.

The Board reached the following decisions unanimously at the Meeting today:

1.    The discount rate, the rate on accommodations with collateral, and the rate on accommodations without collateral are kept unchanged at 1.375%, 1.75%, and 3.625%, respectively.

2.    Taking into account the economic growth and price trends, the Board decided to set the 2018 M2 growth target range at 2.5% to 6.5% (see Appendix 2), the same as this year.

The CBC will continue to closely monitor the latest developments in both actual and expected inflation, output gap, and other international and domestic economic and financial conditions. We will undertake appropriate monetary policy actions accordingly in an attempt to fulfill the central bank's statutory mandate.

IV.  In principle, the NT dollar exchange rate is determined by market forces. If 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, in line with its mandate, step in to maintain an orderly market so as to ensure economic and financial stability.