Taiwan's First Central Bank Minutes Show No Rush to Raise Rates
Taiwan’s central bank released minutes from a policy meeting for the first time Thursday, with the record showing board members saw slowing growth and mild inflation as they decided to keep rates unchanged.
The minutes showed the decision was unanimous as board members deemed further monetary tightening to be unwarranted. Several said growth momentum is expected to slow in the second half as the impetus for exports, domestic consumption and private investment weakens. Inflation will remain mild, and real output is still below potential output, they added.
The decision to release minutes is an effort to bring greater transparency and accountability to an organization about to undergo its first change of leadership in 20 years when Governor Perng Fai-nan steps down next February. The move comes as Taiwan, owner of the fifth-largest foreign-exchange reserves in the world, is under scrutiny from the U.S. for its currency policies. The bank has held its benchmark rate for the last four quarters as inflation remained weak and inflows quickened even as the U.S. tightened monetary policy.
“The minutes reinforced our expectations there will be no rate hike through the second quarter of next year,” said Ma Tieying, an economist at DBS Group Holdings Ltd. in Singapore. “Most board members did not show a tightening bias.”
Central banks in most major economies release minutes and have moved toward increased communication since the global financial crisis. In contrast, Taiwan’s monetary authority has remained opaque. Governor Perng rarely gives interviews and conducts press conferences only after each rate decision. In response to a media report about its lack of communication in July 2016, the bank said in a statement that too much transparency of its currency interventions could unsettle markets.
The 13-page document outlined an economic overview given by central bank officials, followed by a description of unnamed board members’ comments. Several members were concerned about the impact of foreign fund flows, noting the high overseas ownership of Taiwanese stocks and the tightening effects of rapid currency gains.
The comments showed the central bank will remain vigilant about appreciation pressures on Taiwan’s dollar, said DBS’s Ma.
The authority also gave its internal economic forecasts. It projects economic growth of 2.13 percent and inflation of 1.07 percent for the current year, compared with median estimates of 2.1 percent and 1 percent in Bloomberg surveys.
Taiwan’s rate decision is determined after a meeting of its board members, which is typically convened once a quarter. The meeting starts with the central bank’s economic research department briefing members on the domestic and global economy, according to four people who attended such gatherings who asked not to be identified because they are not authorized to speak to the press. The central bank will then recommend a rate decision to the board. While board members can make suggestions or ask questions, they rarely vote, the people said.
In September 2015, when asked about dissent at the meetings by a legislator, Perng said that, during his tenure, all but one rate decisions have been unanimous.
Releasing minutes will encourage board members to prepare better for the meetings and act more professionally, said Lii Sheng-yann, associate professor at National Taipei University and former head of the monetary authority’s banking department.
“Perng is leaving soon, so perhaps he wanted to leave behind a rule for his successor,” Woods Chen, chief economist at Yuanta Securities Investment Consulting in Taipei, said before the release. “He wants the market to think that the central bank is fair and transparent.”