TAIPEI (Taiwan News) – The AI boom fuels a K-shaped economy where interest rate changes do not solve all problems, the Central Bank said Friday.
The K-shaped economy refers to a growing disparity between the poor and the rich, with different parts of society experiencing different impacts from economic change. The upper arm of the K symbolizes the improving situation of some individuals or companies, while the lower arm represents some households and businesses suffering worsening conditions.
The K-shaped economy was first mentioned when different income groups seemed to recover to different levels following the COVID-19 pandemic, the Central Bank said in a Facebook post Friday. The topic became acute again due to the current AI boom, the bank added.
In a K-shaped economy, it was difficult for the bank to influence the economy by adjusting interest rates, the report said. High-income households benefited from the growth of financial markets and assets, boosting consumption patterns. On the opposite side, low- to middle-income households worried about inflation affecting their savings and increasing their debt exposure, the bank said.
The differences would lead to varying degrees of pressure to raise interest rates to combat inflation or keep rates low to lighten the debt load, per CNA. As a result, interest rate policy was not sufficient to address economic problems, the bank said.
Hiking or cutting interest rates was not enough to solve all problems. The bank cited credit restrictions targeting the real estate market as one way of addressing problems in Taiwan.
Traditional economic data focused too much on averages but neglected structural problems. If economic growth relied too much on one group, the imbalance might lead to a weaker economy, according to the Central Bank.
There was a need to consider the factors of inflation, income, employment, consumer spending, and enterprise scale in order to come to an effective monetary policy, the bank report concluded.
