Taiwan's central bank maintained its policy rates and an unchanged target for M2 money supply in light of "moderate momentum for the domestic economic recovery next year, a lingering negative output gap, mild inflation, and stable expectations of future inflation."
The Central Bank of the Republic of China (Taiwan) (CBC), which has cut its key rate four times since September 2015 by a total of 50 basis points, said its board had unanimously agreed to keep the benchmark discount rate at 1.375 percent and the M2 growth target range at 2.50 percent to 6.50 percent to ensure that monetary conditions remain accommodative to help foster economic activity.
The CBC also confirmed its policy of maintaining an orderly market for foreign exchange, saying the divergence of monetary policy among major central banks had "induced erratic cross-border capital movements which could potentially heighten volatility in global financial markets."
After depreciating for most of 2015, the Taiwan New Dollar has risen most of this year though it has declined in the last two months. The TWD was trading at 32.15 to the U.S. dollar today, up 2.6 percent this year.
The CBC noted that yields on Taiwan government bonds have trended up since mid-November, pulled up by the rise in U.S. bond yields, but domestic short- and long-term rates are still at relatively low levels as compared with other major economies, helping reduce financing costs for companies.
The average annual growth rate of bank loans and investments and the monetary M2 aggregate in the first 11 months of the year were 4.15 percent and 4.54 percent, respectively, indicating "ample market liquidity to support economic activity."
The CBC expects the global economy to recover moderately in 2017 and trade to rebound, benefitting Taiwan's exports, which have resumed growth in recent months . An increase in public investment could help boost private investment but wage growth is seen limited and private consumption may slacken.
For 2017 Taiwan's budget, accounting and statistics office (DGBAS) projects growth of 1.87 percent, slightly down from 1.88 percent seen in September. In the third quarter of this year Taiwan's economy grew by an annual rate of 2.03 percent, up from 1.13 percent in the second quarter.
The inflation rate accelerated to 1.97 percent in November from 1.7 percent in October with the DGBAS forecasting full year inflation of 1.31 percent.
Next year the CBC said major forecasting institutions expect inflation to ease to an average of 1.1 percent as inflationary pressures are expected to be restrained by moderate growth in the global economy while domestic demand remains sluggish.
The Central Bank of the Republic of China (Taiwan) issued the following statement: