The central bank’s directors last month all threw their weight behind a policy pause, but several voiced concerns that insufficient monetary tightening may contribute to continued housing and rent cost hikes, minutes of the board meeting released yesterday showed.
All members painted a rate hold as “appropriate” given that the US Federal Reserve made the same move one day earlier and Taiwan’s major economic barometers remained in the contraction zone.
Risks linked to geopolitical tensions, supply chain restructuring and extreme climate changes could have a negative impact on Taiwan’s GDP growth, although it is coming out of the woods, one director said.
Photo: CNA
Furthermore, efforts to curb inflation proved effective and consumer prices should return to the 2 percent target this year, rendering a neutral policy the appropriate move, the director said.
Other board directors conveyed the need to closely monitor price trends, noting that house prices and rents continued to climb and could be the consequence of insufficient tightening.
Taiwan’s inflation currently stands above the 2 percent mark, but is widely expected to ease below 2 percent next year, the director said.
“If the prediction fails to materialize next year, which might be attributable to insufficient monetary tightening, more aggressive tightening would be required,” the director said.
Rental cost movements usually lag behind house prices and persistent house price increases may prompt landlords to raise rents, which would then drive up inflationary pressure, the director said.
As a result, real monthly wages last year registered negative growth despite pay raises, the director said.
Another director agreed that persistent inflation remained a concern and required conscientious monitoring over the longer term.
The absence of declines in rent prices and eating-out costs warrant the caution, the director said.
Another board director expressed support for the rate hold and shared similar concerns over rent hikes.
The director said that rent increases tend to be sticky and could push up overall prices in the end.
“It is important to stay alert to inflation risks next year and continue monitoring price movements,” the director said.
Still, another director said that people feel the pinch more acutely if things they buy frequently grow more expensive despite the CPI readings moving down.
“Whether this perception would affect public expectations of the CPI is worth close attention,” the director said.
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