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Ex-Taiwan Central Bank Official Says Policy ‘Chaotic,’ Unclear

Yang Chin-long Photographer: Annabelle Chih/Bloomberg (Annabelle Chih/Bloomberg)

(Bloomberg) -- An ex-Taiwan central bank official criticized the island’s monetary policy as being inconsistent, blaming Governor Yang Chin-long for failing to communicate policy intentions clearly and sparking market volatility. 

Chen Nan-kuang, former deputy governor of the central bank, said in a new book that Taiwan’s monetary policy framework lacks clarity under Yang. It relies on too many indicators, which can lead to confusing and illogical decisions, according to Chen. 

Yang has been called ‘Mr Surprise’ by traders due to a series of unexpected rate decisions. In March 2022, the central bank shocked many when it raised the benchmark rate by the most since 2007. Then, in March this year, it surprised again by increasing rates against the predictions of most economists. The move put Taiwan’s monetary authority at odds with most major central banks, including the Federal Reserve, which were considering easing their policies.

“Looking back at the decision-making process of the central bank in response to the wave of inflation that began in 2021, one can see that this kind of contradictory and chaotic policy has emerged repeatedly,” said Chen, who served as Yang’s deputy from 2018 to 2023. 

Taiwan’s central bank and Yang’s office didn’t respond to several requests from Bloomberg News for comment. 

The central bank follows a flexible monetary policy framework, using various indicators such as M2 growth, inflation forecasts, output gap, interest and exchange rates, as well as credit and asset prices.

However, Chen argues that relying on so many data points can complicate decision-making. He suggests that the central bank adopt a clear inflation target, which would be simpler, more transparent and improve accountability. 

“Yang’s decisions have been surprising because the CBC probably misjudged the extent of inflation pressure,” said Michelle Lam, Greater China economist at Societe Generale, using the bank’s official name, the Central Bank of the Republic of China. “To be fair, many central banks also committed the mistake.”

She said the central bank does have a clear policy goal, pointing to the inflation range of 0% to 2% as stated on its website. For Lam, the more pertinent question is the level of interest rate over the long term.

“The CBC needs to think about whether low interest rate environment is best for Taiwan when the economy is enjoying a structural AI boom,” she added. 

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