The central bank yesterday left its policy rate intact for the third straight quarter, saying that inflationary pressure has moderated and a policy pause would help support the economy amid lingering global uncertainty.
Governor Yang Chin-long (楊金龍) made known the decision after the quarterly board meeting and hinted at potential rate cuts next year if the consumer price index (CPI) returns to the 2 percent target and the US Federal Reserve turns its monetary policy stance around.
The Fed held its policy rate steady overnight, with Fed Chair Jerome Powell telling a news conference that a recession is not necessary for rate cuts. The Fed’s dot plot, which shows Fed directors’ estimates for interest rates over the long run, signals a reduction of 75 basis points next year.
Photo: I-Hwa Cheng, Bloomberg
“Taiwan’s economy is too small and open to stay above external influences and chart its own monetary policy path,” Yang told reporters.
Capital movements beat interventions in dominating foreign exchange markets and currency directions, the governor said, adding that the Fed’s dovish rhetoric lifted bourses across the world and currencies gained value against the greenback.
Taiwan’s monetary tightening is also approaching an end, although the central bank would likely maintain its current stance in the first half of next year, Yang said.
He quoted Powell as saying that the COVID-19 pandemic taught global central banks a hard lesson on “unpredictability” as the Fed governor last month reiterated that interest rates would “stay high for longer.”
Yang painted Taiwan’s 2.9 percent CPI increase last month as weather-driven and that inflation would ease to 1.89 percent next year.
At the same time, the nation’s economy would come under continued challenges from geopolitical tensions and economic slowdown from the US and China, which account for more than 50 percent of Taiwan’s exports, the governor said.
The negative output gap is expected to deepen from 0.5 percent this year to 0.84 percent next year, meriting a policy pause despite an ongoing recovery, Yang said.
The central bank is looking at GDP growth of 3.12 percent next year, from a 1.4 percent this year. Central bank officials attributed the uptick mainly to a low base.
Board directors shared similar observations and arrived at the conclusion unanimously, he added.
The central bank did not introduce fresh measures to tighten property or land transactions, saying that previous waves of lending restrictions have achieved the effect of slowing price hikes, he said.
However, the property market remains on the central bank’s radar and it would move to regulate whenever it sees fit, he said.
The property market breathed a sigh of relief at the central bank’s rate pause, which fell in line with market expectation, Great Home Realty Co (大家房屋) said.
Property speculators have largely fled the market, leaving people with real demand to underpin transactions, Great Home chief researcher Mandy Lang (郎美囡) said.
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