Taiwan Central Bank Statement

Author: | Published: 5 Sep 2017
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The year 2016 started off with export contraction and weak economic expansion amidst a tepid global economy. As external demand recovered from the latter half of 2016 onwards, exports and investment picked up and private consumption grew moderately. The annual GDP growth rate rose from 0.72% in 2015 to 1.48% in 2016, and the economy is expected to expand by 2.05% in 2017.

Reflecting weather-induced food price surges, the CPI inflation rate was 1.4% in 2016, while core inflation grew at a pace of 0.84%. As food prices trended downward, the CPI inflation rate averaged 0.67% for the first half of 2017. The Central Bank of the Republic of China (Taiwan) (CBC) forecasts a mild inflation rate of around 1% for the year as a whole.

Against a backdrop of a slow economic recovery, a widened negative output gap, and subdued inflation expectations, the CBC cut the policy rates in both March and July 2016 by a total of 25 basis points. Afterwards, as the economy strengthened and inflation was expected to stay stable, the policy rates were kept unchanged to foster economic growth with the continuation of easy money and credit conditions. The CBC also conducted open market operations to maintain adequate liquidity in the banking system. From 2016 through to the first five months of 2017, bank credit and M2 both grew faster than GDP, indicating there was sufficient market liquidity to support economic activity.

On the housing front, targeted macroprudential measures have proved effective and relevant government policies, including real estate tax reforms, have also pared down speculative real estate transactions. Based on these developments, the CBC announced in March 2016 that while those on high-value housing loans remained in place, credit controls on home mortgages and land-collateralised loans were lifted.

During 2016, the CBC continued to maintain dynamic stability of the new Taiwan dollar (TWD) under a managed floating exchange rate regime. The domestic financial market was roiled by erratic short-term capital flows. The TWD was broadly on an appreciating trend partly because of foreign capital inflows that resulted in higher net foreign buying than other major Asian stock markets.

In terms of financial development, the CBC approved a new range of financial products and the issuance of negotiable certificates of deposit denominated in Australian dollar, enriching investment choices for hedging or wealth management. Financial services have made even greater strides as the CBC continued streamlining electronic forex business application procedures for banking enterprises. We also enhanced further the foreign currency clearing platform services, which further increases settlement efficiency and significantly reduces foreign currency remittance fees.

Looking ahead, uncertainties, such as US economic and trade policies, Brexit negotiations, and a rapid debt build up in emerging markets, could disrupt international financial markets and cast a shadow over the global economic recovery. The CBC will continue to closely monitor the economic and financial developments in Taiwan and across the world and take appropriate policy actions in line with its statutory mandate, including maintaining an orderly foreign exchange market to safeguard dynamic stability of the TWD.




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