Taiwan: Central Bank stays put in first meeting of 2017
March 23, 2017
At its first quarterly monetary policy meeting of 2017, held on 23 March, the Central Bank of the Republic of China (CBRC) decided to leave its discount rate unchanged at 1.375%. This was the third consecutive quarter in which the Bank has left the main monetary policy rate unchanged, following an easing cycle that began in Q3 2015.
The Bank’s decision was expected by the markets, since the Taiwanese economy is gradually gaining momentum. The Bank highlighted that healthier external demand, particularly from China, has boosted Taiwanese exports, while domestic demand has been supported by renewed fiscal stimulus. However, the strength of growth has not been sufficient for the monetary authority to tighten monetary policy, and price rises have remained modest. Although inflation fell abruptly to zero in February from 2.5% in January, the result mainly reflected a calendar effect due to the timing of the Lunar New Year. Inflation is likely to rebound in March and should continue rising going forward due to higher energy prices. Nonetheless, the recent strengthening of the Taiwanese dollar against other major currencies will help to ease inflationary pressures.
The latest economic data signal that Taiwan’s economy strengthened further in the first quarter of 2017 and that the banking system remained well-funded. The Bank also noted that monetary easing around the globe is reaching its limits and the stimulus it has created is gradually fading, which suggests that fiscal stimulus may now be needed to bolster economic growth. Therefore, the Central Bank praised the government’s initiative to boost public investment with its new eight-year infrastructure plan presented on 23 March.
Author: Ricardo Aceves, Senior Economist