Central bank members show concern about inflation

• By Crystal Hsu / Staff reporter

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Central bank board members expressed concern about rising inflation, but differed on whether to raise interest rates, with two directors favoring a hike — including one who called for monetary policy normalization — while the majority supported holding rates steady, minutes of the bank’s meeting last month showed.

Directors said that import and producer prices were potential sources of further consumer inflation, while the government’s measures to stabilize energy prices had helped shield consumers from higher oil costs.

One director said that Taiwan should begin normalizing monetary policy, saying a rate increase would not necessarily be intended to curb inflation or slow economic activity, but to move borrowing costs toward a more neutral level after a prolonged period of exceptionally low rates.

A woman walks past the central bank logo in Taipei on September 17.

Photo: CNA

Other directors favored keeping rates unchanged, saying that inflation in Taiwan is more moderate than in the US, the eurozone and South Korea, where price increases had exceeded 3 percent.

The central bank had tightened financial conditions without raising its benchmark rate since March 2024, using higher reserve requirements, stricter property lending rules and open-market operations, they said.

Keeping rates unchanged while the US Federal Reserve raised its policy rate could widen the interest-rate gap between the two economies, putting further downward pressure on the New Taiwan dollar and pushing up import costs, one director said.

The director cited rising producer prices for domestically produced goods sold locally and increases in import prices as threats to the consumer price outlook.

However, other directors said that higher rates could deepen disparities in access to credit.

Technology companies benefiting from strong artificial intelligence-related demand and profitability are generally less sensitive to borrowing costs than traditional manufacturers, they said.

With financing demand from the information and communications technology sector already contributing to tight liquidity, higher rates could make it more difficult for small and medium-sized enterprises, micro-businesses and traditional manufacturers to secure funding, they said.

Directors also highlighted the uneven recovery in domestic demand.

Despite surging exports, private consumption has remained comparatively subdued, limiting the extent to which rapid economic growth has translated into broader inflationary pressure.

Higher import prices for electronic components have also largely been reflected in export prices, while energy-price stabilization measures have helped contain the pass-through of oil costs to consumers.

Separately, one director urged the central bank to closely monitor banks’ growing lending to securities firms amid rapid stock trading, warning that a sharp market correction could expose lenders to greater risks.

All of the board members agreed that policy decisions should take into account inflation trends, domestic financial conditions and monetary policy moves by major overseas central banks.