Central Bank of the Republic of China (Taiwan): Policy Left Unchanged

March 28, 2013

Monetary policy is reviewed on a quarterly basis in Taiwan.  The benchmark interest rate is the discount rate.  It has been at 1.875% since a 12.5-basis point hike in June 2011, which culminated a series of five consecutive equal-sized increases that was begun in June 2010.  Earlier, the discount rate was slashed from 3.625% prior to September 2008 to 1.25% by February 2009.

A policy review has just been completed, which resulted in continuing the status quo.  Analyst expectations on the likely timing of resumed rate increases are split between those anticipating a move during the second half of 2013 and others believing the onset will not occur before 2014.  The central bank’s board released a statement today that called the current rate level appropriate since “global economic uncertainties remain and Taiwan’s economy is experiencing a mild recovery along with muted inflationary pressures.”  On-year M2 money growth in January-February of 3.26% was within the central bank’s 2.5-6.5% target corridor.  Officials expect real GDP to expand 3.6% on average in 2013 and foresee CPI inflation of just 1.4%.  As noted in earlier policy reviews, officials explicitly reserved the right to conduct currency intervention “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.”

Copyright 2013, Larry Greenberg.  All rights reserved. No secondary distribution without express permission.



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