Introduction to Interest Rates
The central bank has decided to keep its key interest rates unchanged for the fifth quarter in a row. This decision was made after the US Federal Reserve chose not to change its interest rates, despite pressure from US President Donald Trump to lower borrowing costs.
The Decision Explained
Central bank board members voted unanimously to maintain the discount rate at 2 percent, the secured loan rate at 2.375 percent, and the overnight lending rate at 4.25 percent. This decision aligns with market expectations and takes into account the current inflation outlook. According to the central bank’s governor, Yang Chin-long, the policy decision is appropriate, considering the slackening inflation and stable GDP growth.
Economic Growth and Inflation
The central bank has retained its full-year GDP growth forecast at 3.05 percent, citing stronger-than-expected economic performance so far this year. This growth is largely due to the demand for artificial intelligence hardware and businesses preparing for potential US tariff hikes. However, the bank forecasts a sharp economic slowdown in the second half of the year, with GDP growth predicted to be 0.78 percent.
Inflation Projections
The central bank has lowered its projection for consumer price index (CPI) growth from 1.89 percent to 1.81 percent. Core CPI, which excludes energy, vegetables, fruits, and other volatile items, is estimated to be 1.69 percent. These predictions are lower than last year’s 2.18 percent and 1.88 percent, respectively.
Rate Cut Conditions
A rate cut is only possible when inflation falls below 1.5 percent and economic conditions deteriorate, which has not yet been detected. The central bank’s governor stated that while inflation is mitigating, there has not been a significant enough slowdown in the economy to justify a rate cut.
Currency and Property Market
The central bank said it would maintain market stability but refused to comment on defending a specific exchange rate. The NT dollar closed at NT$29.621 to the US dollar, down NT$0.079 from the previous session. As for the property market, the central bank did not introduce new mortgage curbs and refrained from loosening existing rules.
Conclusion
In conclusion, the central bank’s decision to keep interest rates unchanged is based on the current economic conditions and inflation outlook. While a rate cut is possible in the future, it would require inflation to fall below 1.5 percent and economic conditions to deteriorate. The central bank will continue to monitor the economy and make adjustments as necessary to maintain stability and growth.
