Taiwan Central Bank Statement

Author: | Published: 19 Oct 2018
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2017 was a year of a steady global economic recovery and commodity price upswings, which combined to drive Taiwan's exports expansion as domestic consumer spending maintained moderate growth. Taiwan's economy expanded by 2.89%, the highest annual growth rate in three years. With the support of solid global economic growth and the government's fiscal expansion to boost domestic demand, the economy is expected to grow by 2.60% in 2018.

While the global economic upturn sent oil and other international raw material prices on a rebound, domestic inflation was still mild as NT dollar appreciation helped alleviate imported inflationary pressures and a weather-induced higher base effect held down food prices. The CPI inflation rate rose by 0.62% in 2017, while the core CPI (excluding vegetables, fruit, and energy prices) went up by 1.04%. The CPI inflation rate averaged 1.65% for the first seven months of 2018, mainly driven by higher vegetable, cigarette and oil prices. The Central Bank of the Republic of China (Taiwan)(CBC) forecasts an inflation rate of 1.4% for the year as a whole.

Given that the global economic outlook was uncertain, the domestic economy grew moderately, the output gap was still negative and inflationary pressures were subdued, the CBC held policy rates unchanged throughout 2017 to June 2018. The CBC also conducted open market operations to adjust liquidity in the banking system. From 2017 through to the first half of 2018, bank credit and M2 both grew faster than GDP, indicating that market liquidity was sufficient to support economic activity.

In addition, the CBC took a step further to enhance the transparency of policy-making. Since June 2017, we have published the minutes of Board Meetings six weeks after each meeting so as to aid public understanding of monetary policy-making.

With respect to foreign exchange (FX) policy in 2017, the CBC relaxed several FX regulations, expanded the approved scope of FX derivatives while streamlining the application procedures, facilitated electronic declaration of FX settlements and allowed securities enterprises to engage in NT dollar spot foreign exchange transaction business.

To strengthen financial infrastructure, the CBC also reorganised the payment system to achieve greater safety and efficiency and urged clearing institutions to strengthen system integrity and information security. Furthermore, in light of fintech's growing presence and importance, the CBC will welcome new ideas and respond to new demands. The CBC has set up a research team to study digital finance and financial technology, keeping a close watch on the development in blockchain, regulatory technology (regtech), big data, and artificial intelligence.

Looking ahead, uncertainties around the world, including policy normalisation by major central banks of the advanced economies, rising trade protectionism and escalating geopolitical risks could heighten financial market volatility and disrupt global economic growth. Our monetary and FX policies will be responsive to the economic and financial developments at home and abroad and remain consistent with our statutory mandate, which includes maintaining an orderly FX market to safeguard the dynamic stability of the NT dollar.