Central bank keeps key rates unchanged

FED UP: The governor of Taiwan’s central bank said that there is still time to observe, while stock markets around the world mostly rose after the US Fed hiked interest rates

• By Crystal Hsu / Staff reporter

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The central bank yesterday kept its key interest rates unchanged for a 10th straight quarter while easing housing credit controls, signaling confidence that property lending has cooled enough to allow a targeted relaxation without undermining financial stability.

The central bank left its discount rate at 2 percent, the collateralized lending rate at 2.375 and the short-term lending rate at 4.25 percent.

However, it increased the maximum loan-to-value ratio for people buying a second home to 70 percent from 60 percent and ended a restriction on loans for land purchases.

Central bank Governor Yang Chin-long speaks at a news conference at the bank in Taipei yesterday.

Photo: CNA

Central bank Governor Yang Chin-long (楊金龍) said that monetary policy has remained relatively tight since 2024, helping stabilize domestic prices and anchor inflation expectations.

“We still have time to observe,” Yang said, adding that two central bank board members dissented, while the majority backed maintaining the current policy stance.

Some members nevertheless warned that inflation still requires close monitoring, he said.

The cautious approach reflects uncertainty over the global economic outlook and the potential effect of conflict in the Middle East on Taiwan’s prices and economy, Yang said.

Domestic inflation is manageable this year and is expected to fall below 2 percent next year, while economic growth is expected to remain solid, he said.

The central bank lifted its forecast for full-year economic growth to 11.48 percent and said it expects the pace to slow to 5.82 percent next year.

It also raised its growth forecasts for this year’s consumer price index (CPI) and core CPI to 2.03 percent and 2.16 percent respectively, putting both above its 2 percent inflation watch level.

The easing in housing comes as property lending has continued to moderate. Real-estate loans accounted for 34.44 percent of total bank lending at the end of July, down from 35.56 percent in March and 37.61 percent in June 2024.

Credit flows into property have dropped, while first-home buyers account for a growing share of residential mortgage borrowers, Yang said.

Lending for urban renewal and reconstruction of aging or unsafe buildings has also taken up a larger share of construction loans, he said.

Housing transactions have cooled, with speculative activity declining and expectations of further home-price gains moderating, Yang said.

The central bank also removed a requirement introduced in December 2021 that land loans be accompanied by a commitment to begin construction within a specified period.

Yang cited labor shortages and difficulties disposing of excavated soil as factors that can delay projects.

Commercial banks have gained more experience managing property-related credit risks after several years of tighter controls, giving the central bank room for a targeted relaxation of land-financing restrictions, Yang said.

The bank also expects growth in broad money supply to exceed its 2.5-to-6.5 percent reference range this year and raised the upper end to 6.75 percent, citing robust artificial intelligence-related exports and investment, buoyant stock-market activity and a low comparison base.

Global stock markets mostly rose yesterday after the US Federal Reserve delivered a widely expected interest rate hike, while falling oil prices and easing bond yields also helped calm inflation fears.

The Fed on Wednesday lifted borrowing costs for the first time since 2023, despite US President Donald Trump’s demand for cuts, as Fed Chairman Kevin Warsh insisted on the need to combat inflation that has been “too high” for “too long.”

Stock markets in Taipei, Tokyo, Sydney, Singapore, Wellington, Mumbai, Bangkok and Jakarta all advanced.