The Central Bank of the Republic of China (Taiwan) left its main policy rate unchanged at 1.875 percent at its quarterly policy meeting today. This is the first time the rate has been left unchanged since late 2021 and follows a cumulative increase of 75 basis points at its previous five meetings since early 2022.

Data released since the previous policy meeting mid-March have shown a moderation in price pressures, with headline CPI inflation falling from 3.04 percent in January to 2.02 percent in April. Activity indicators have also shown weaker conditions. GDP fell 2.87 percent on the year in the three months to March and PMI surveys have shown ongoing contraction in the manufacturing sector.

The statement accompanying today's decision shows officials expect economic growth to pick up in the second half of the year, but to a lesser extent than previously anticipated, with their forecast for annual growth in 2023 revised down from 2.21 percent to 1.72 percent. Officials have adjusted their 2023 inflation forecasts slightly higher, with their forecast for headline inflation revised up from 2.09 percent to 2.24 percent and their core inflation forecast revised up from 2.09 percent to 2.38 percent.

Officials concluded today that the policy tightening they have already implemented since the start of last year means that they now have scope to pause and assess the cumulative effects of that tightening. The statement provides little guidance on the likelihood of additional policy tightening in coming months, merely noting that adjustments to policy settings 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.