Taiwan: Central Bank keeps rates unchanged in December
At its monetary policy meeting on 16 December, the Board of Directors of Taiwan’s Central Bank (CBC) kept rates unchanged, leaving the discount rate at the record low of 1.125%. However, the Bank continued to tighten the screws on the real estate sector in a bid to contain excessive property lending, lowering the loan-to-value (LTV) ratio cap on a range of loan types.
Although inflation has been running relatively high in recent months due to elevated international commodity prices and the impact of heavy domestic rainfall, price pressures are still limited relative to many other advanced nations amid mild wage growth. Moreover, the Bank sees inflation slowing significantly next year as international energy prices stabilize. In addition, uncertainty over the global economic outlook persists due to the Omicron variant. As such, the Bank felt it was prudent to keep rates unchanged.
Looking ahead, the Bank stated that “if domestic prices are persistently higher, or pandemic-hit sectors regain solid footing, or major economies begin to raise policy rates, the Bank may, as necessary, adjust its monetary policy”. The majority of our panel now sees either one or two 12.5 basis-point rate hikes next year, as the strong economy allows the Bank to withdraw some stimulus in line with other advanced nations.
Ho Woei Chen, economist at United Overseas Bank, said:
“The rate decision […] reflected the CBC’s thinking that the growth recovery of various industries is still uneven with potential downside risk to the outlook next year while domestic inflationary pressure is contained. The CBC also noted that despite the recovery in employment, it has not returned to the pre-pandemic level yet. […] We maintain our view that the CBC will raise interest rates by Q3 2022 after major central banks have kicked off their rate normalisation. We have only factored in a 12.5 basis-point increase next year but see potential for another 12.5 basis-point hike should the economic and inflation outlook remain strong.”
The next meeting is scheduled for 17 March next year.