The Central Bank of the Republic of China (Taiwan) increased its main policy rate by 12.5 basis points from 1.75 percent to 1.875 percent at its quarterly policy meeting today. This follows increases of 12.5 basis points at their previous three meetings in December, June, and September and an increase of 25 basis points last March.

The statement accompanying today's decisions shows officials expect Taiwan's economy to grow only modestly in the first half of the year, with both investment and export growth expected to be weak. Conditions, however, are expected to improve later in the year in response to fiscal measures and stronger external demand. Relative to forecasts made in December, officials have revised down their forecast for 2023 GDP growth from 2.53 percent to 2.21 percent. They forecast headline inflation to fall from 2.95 percent in 2022 to 2.09 percent in 2023, with core inflation forecast to fall from 2.61 percent to 2.09 percent.

Reflecting this assessment of the outlook, officials concluded that a further increase in the policy rate today will help to"rein in domestic inflation expectations" and maintain price stability. The statement also advises that officials will monitor the impact of previous policy tightening but provides little guidance on the likelihood of additional policy tightening in coming months, merely noting that adjustments will be made if considered warranted.

Taiwan’s central bank, the Central Bank of the Republic of China, announces its monetary policy with regard to interest rates four times a year. The announcement conveys to the financial markets and investors what, if any, changes in policy might be. The main focus is the target set for the discount rate.

The Central Bank of the Republic of China determines interest rate policy at four quarterly meetings during the year, with officials adjusting their main policy rate, the discount rate. A post-meeting statement is issued after each meeting, while the minutes of each meeting are published a few weeks later.

Monetary policy goals are to aid and abet solid economic growth along with rising living standards, and to keep inflation low, stable, and predictable. The level of interest rates affects the economy. Higher interest rates tend to slow economic activity; lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, few homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the financial markets, while lower interest rates are bullish.