The central bank might maintain its accommodative monetary policy for the foreseeable future amid rising uncertainty about the global economy, its September board meeting minutes showed, while one member of the board of directors raised the possibility of adjustments.
Several directors urged the monetary authority to look beyond this and next year when setting policy rates.
“The board might need to be prepared for careful deliberation on whether to adjust the policy rate in the upcoming quarter or the next six months,” one director said.
Maintaining the low interest rate would not necessarily be good for the long-term development of the economy, considering the interplay between interest rates and prices, the board member said.
It is advisable to monitor and assess the paths of policy rates in major economies, the director said, adding the US and UK had both raised their interest rates, while China and South Korea had higher policy rates than Taiwan’s.
In addition, consumer prices had risen more than 1.5 percent for eight consecutive months by September, pushing Taiwan’s real interest rates into negative territory, the board member said.
Other directors suggested that the central bank look at longer-term trends when making policy, as it considers variables in the current and next year instead of three or four years ahead.
Upcoming rate adjustments do not have to follow previous patterns and approaches, another director said.
The US interest rate policy is in general more preemptive, because the US Federal Reserve not only considers current inflation and liquidity, but also adjusts rates as a precaution in response to inflation and market liquidity expectations, the director said.
Monetary policy should be based on predictions, and greater monetary policy flexibility and responsiveness require more thorough analyses and projections, they said.
Rate adjustments could be put to a discussion to allow sufficient space for monetary policy maneuvering in case the global economy slumps into a recession that affects Taiwan, another director said.
Policy rates should also take into consideration potential risks facing the global economy in several years’ time, directors said.
Some Taiwanese firms were considering strategically relocating their production bases and stable interest rates might help convince them to invest their funds in Taiwan, they said.
However, low interest rates might prevent optimal fund allocation, they added.
Directors shared the concern that major economies might be headed for moderation next year as the US-China trade spat intensifies.
Global inflation would gain traction this year and climb further next year, reflecting weakness in several currencies and rising energy prices, directors said.
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