The central bank might change its monetary policy at a board meeting next month, as several members brought up the issue in the board’s last meeting in December last year.
The minutes of the December meeting quote one director as saying that if inflationary pressure intensifies, the central bank should raise its interest rates in the next quarterly meeting, which is on March 17.
Characterizing the central bank’s monetary policy approach over the past few years as “mild,” the director said that the board should closely watch the US Federal Reserve’s policies and make adjustments at a measured pace.
The Fed has indicated that it would raise interest rates three to four times this year, starting next month, to rein in inflation pressure amid a high employment rate.
In Taipei, “the central bank should weigh in inflation expectations and price trends, and take them into consideration in the next quarterly meeting,” the director said, urging a “timely” monetary policy adjustment.
Calling Taiwan’s inflation rate less concerning, another board member said that the central bank should ensure that the rate does not exceed 2 percent, adding that the nation’s average inflation rate was 0.95 percent over the past 20 years.
The director said that the central bank would plan early, assess potential effects and take quick policy action whenever necessary.
As for addressing inflation and rising housing prices, the director said that the central bank might have to act “bolder” than in the past two decades.
Another board member voiced reservation, saying that market conditions are due mainly to ample liquidity amid excessive savings and investment deficiency.
Excessive savings have gained momentum following the 2008 global financial crisis and picked up faster last year, despite significant investment gains, as the COVID-19 pandemic weighed on private consumption, the director said.
The central bank should take savings into account when drawing up monetary policies, the director said.
If the investment volume continues to grow amid a healthy economy, a higher inflation rate should be acceptable, the director said.
Another board member said that the central bank should consider housing prices, in addition to inflation and economic growth, when weighing policy changes.
“It seems appropriate to gradually embark on monetary normalization, which would help subdue housing prices,” the director said.
Another board member said it is important for the central bank to tell the public that GDP growth would be moderate this year, as economic uncertainty is likely to prevail despite easing supply chain bottlenecks.
“Such communication would help ease inflation expectations,” the director said.
Another board member said that Taiwan has ample liquidity so that rate increases might attract capital inflows and make the situation worse.
The director said that policy adjustments must factor in inflation outlook, the situation in sectors affected by the pandemic and policies set by the central bank’s global peers.
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