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Taiwan Monetary Policy June 2024

Taiwan: Central Bank maintains policy rate but hikes reserve requirements in June

At its meeting on 13 June, the Central Bank of the Republic of China (Taiwan) decided to keep the discount rate, the rate on refinancing of secured loans, and the rate on temporary accommodations unchanged at 2.00% 2.38% and 4.25% respectively. This followed rate hikes in March.

The decision not to hike policy rates further was driven by moderate headline and core inflation, which were both close to 2% in May. Rate cuts were premature given faster-than-expected recent economic growth and a hot property market. However, the Central Bank did increase reserve requirements and loan-to-value limits for homebuying in a bid to contain excessive credit flows into the real estate market.

The Central Bank did not provide specific forward guidance on the future direction of interest rates. The Consensus among our analysts is for interest rates to end this year close to their current level. Most panelists see rates on hold, some see cuts and a few see hikes.

Nomura analysts said:

“Although it left its policy rate unchanged at 2.00%, the unexpected hike in the RRR and tighter credit controls indicate that the CBC is focused on price and financial stability amid the economic recovery. We reiterate our view that sticky inflation, a likely overheating economy and the housing market boom will eventually prompt the CBC to hike once more by 12.5bp at its September meeting.”

In contrast, Goldman Sachs’ analysts were more dovish:

“The CBC Governor explained that the central bank opted to hike the RRR and not the policy rate at this meeting given that the central bank had already delivered a surprise rate hike in March. […] Overall, we continue to expect the CBC to stay on hold until the first cut at the December meeting.”

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