Republic of China (Taiwan) Central Bank Statement

Author: IFLR Correspondent | Published: 24 Sep 2019
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Taiwan experienced stable growth in domestic demand in 2018, while external demand was dampened by a flagging global economy in the latter half of the year. For 2018 as a whole, the annual GDP growth rate fell from 3.08% in 2017 to 2.63%. As rising global economic uncertainties have caused the global economy to decelerate, weighing on Taiwan's exports, the Directorate General of Budget Accounting and Statistics (DGBAS) forecasts Taiwan's economy to grow by 2.46 % in 2019.

The annual growth rate of the consumer price index (CPI) rose by 1.35% in 2018, mainly driven by international oil price surges and a deferred boost from the cigarette tax hike. For the first seven months of 2019, the CPI inflation rate averaged a moderate 0.54%. With international oil prices trending lower than last year and domestic demand remaining mild, the DGBAS forecasts an inflation rate of 0.67% for the year of 2019.

In view of heightened international uncertainties, moderate domestic economic growth, a still negative output gap, and mild inflation outlook, the Central Bank of the Republic of China (Taiwan) (CBC) has held the policy rates steady and kept an accommodative stance so as to foster solid economic and financial development. Meanwhile, the CBC has managed market liquidity through open market operations. From 2018 through to July 2019, bank credit and M2 have stayed above the GDP growth rate, indicating sufficient market liquidity to support economic activity.

Furthermore, to reinforce communication with the public about monetary policy, the CBC began to provide a live stream of the post-board meeting press conferences from June 2018 onwards. This represented a step forward in central bank transparency, just one year after the CBC started to publish its quarterly board meeting minutes.

Throughout 2018, Taiwan's foreign exchange (FX) market showed a supply-demand balance. The NT dollar demonstrated dynamic stability under a managed floating regime as the CBC smoothed out excessive upward or downward swings in the NTD-USD exchange rate movements when needed.

To enhance financial inclusion, the CBC kept up its efforts to improve financial infrastructure, along with keeping a keen eye on the latest developments in financial technologies and maintaining a goal to encourage the use of electronic payment instruments. A key example of these efforts was the blockchain-based platform for financial audit verification, freshly inaugurated in late 2018 by the Financial Information Service Company under the auspices of the CBC. Moreover, the CBC continued to assist financial institutions in promoting the government's mobile payment service Taiwan Pay.

Looking ahead, uncertainties about US-China trade friction and the monetary policies of major central banks, as well as geopolitical tensions, could roil international financial markets and dampen the global economic fortunes. In light of these risks, the CBC will continue to monitor domestic and external economic and financial developments and take appropriate monetary and FX policy actions in line with its legal mandate, including maintaining an orderly FX market to safeguard dynamic stability of the NT dollar.