Central bank meeting minutes show directors' hawkish stance

Taipei, July 30 (CNA) Some directors of the Central Bank of the Republic of China (Taiwan) remain hawkish and want to tighten monetary policy to take on inflation, according to the minutes of the last quarterly policy-making meeting released by the bank.

The minutes of the June 13 meeting, which do not provide the names of the directors who offer opinions, revealed that one director of the bank said he or she would have supported a decision to raise interest rates at the meeting.

The director said increases in rent and dining out costs have pushed the consumer price index (CPI) higher in recent months, and argued that the central bank should not relax its efforts on inflation but instead show its determination to fight higher prices.

At the June meeting, the central bank left its key interest rates unchanged after a surprise rate hike of 12.5 basis points in March.

After the June decision, the discount rate remained at 2 percent but is still at a 15-year high, with the rate on accommodations with collateral at 2.375 percent and the rate on accommodations without collateral at 4.250 percent.

While leaving interest rates unchanged, the central bank decided to raise the required Taiwan dollar deposit reserve ratio, which is the proportion of deposits regulators require banks to hold in reserves, by 25 basis points.

The director said although the hike in the deposit reserve ratio would tighten liquidity, there was still reason for the central bank to raise interest rates.

In June, Taiwan's CPI rose 2.42 percent from a year earlier with the core CPI, which excludes vegetables, fruit and energy, up 1.83 percent.

In the first six months, the CPI rose 2.27 percent with the core CPI up 2.02 percent, just above the 2 percent target set by the central bank.

In the first half of this year, rent rose 2.34 percent from a year earlier, contributing about 0.35 percentage points to the CPI's growth, according to the Directorate General of Budget, Accounting and Statistics (DGBAS).

The DGBAS said dining out costs grew 3.33 percent in the six-month period, contributing about 0.35 percentage points to the CPI's growth.

Another director agreed, saying that with home prices in Taiwan continuing to rise and leading to higher rents, a tighter monetary policy would be appropriate.

A third director also raised concerns over rising rental costs, saying their increase in the first half of this year largely surpassed the average increase for all of 2023, and therefore the central bank needed to stay focused on inflation.

According to the DGBAS, monthly increases in the cost of rent have ranged between 2.24 percent (in February) and 2.59 percent (in June), all higher than the average increase of 2.16 percent for all of 2023.

Another director, however, argued that with the discount rate hitting a 15-year high, monetary policy should stay unchanged because non-tech companies have not benefited from the AI boom as have tech companies and are still shouldering a heavy financial burden.

Meanwhile, one director said at the meeting that the recent five rounds of selective credit controls by the central bank had failed to rein in speculation in the local housing market.

That director supported the central bank's decision at the June meeting to launch another round of selective credit controls as well as increase the required deposit reserve ratio, and that opinion was heeded by the bank.

It decided to lower the loan-to-value ratio -- the percentage of the value of the house that can be carried in a mortgage -- for second-home mortgages from 70 percent to 60 percent, hoping to reduce property speculation by forcing buyers to put up more of their own money to buy property.

The areas most affected by the sixth round of credit controls are the six largest cities in Taiwan -- Taipei, New Taipei, Taoyuan, Taichung, Tainan and Kaohsiung -- as well as Hsinchu City and Hsinchu County.

Another director said, however, that unless the central bank raised interest rates sharply to drain liquidity from the market, it was not likely that speculation in the local home housing market could be quelled.

At the meeting, the central bank cut its forecast for CPI growth for 2024 from 2.16 percent to 2.12 percent, and lowered its estimate of core CPI growth from 2.03 percent to 2.00 percent.