Wed, Jan 17, 2001 - Page 17 News List

Interest rate cut unlikely


The central bank doesn't plan to follow last month's interest rate cut with another, as lower rates probably wouldn't help boost the economy, the bank's deputy chief said.

"As of now, there are no plans to cut rates," central bank Deputy Governor Chen Shih-meng (陳師孟) said yesterday. "The problem in Taiwan is slowing consumption, not slowing investment."

Central bank policy-makers cut interest rates last month to head off an economic slowdown, reducing the benchmark rediscount rate to 4.625 percent from 4.75 percent. The bank next meets to set interest rates in March.

While there are plenty of signs Taiwan's economy is slowing, Chen said he doubts whether cutting interest rates again would offer a quick fix. The benefits of cheaper credit would flow mostly to the government, allowing it to borrow more cheaply to fund public works projects, he said.

Taiwan's export growth has slowed for three straight months as weakening US demand hurts sales for chipmakers and other manufacturers, and the domestic economy isn't faring much better.

The jobless rate rose to its highest level in 15 years in November as a growing number of companies went out of business.

Since Taiwan's December rate cut, the US Federal Reserve unexpectedly slashed rates by half a percentage point, citing signs the US economy is losing steam. Central Bank Governor Perng Fai-nan (彭淮南) said he hopes US rates will continue to fall.

"We prefer to see additional rate cuts by the US Federal Reserve, because that will boost the slowing US economy, which will in turn boost Taiwan's exports," Perng said.

"The central bank's main goal this year is to help boost domestic consumption while maintaining stable markets and inflation.

"There are some uncertainties in the market, such as oil prices, so we cannot say for certain what measures to take."

The central bank still expects the nation's economic growth this year to reach 5.88 percent, Perng said. The bank's growth target is below the 6.03 percent predicted in November by the Directorate General of Budget, Accounting and Statistics.

"Taiwan will need to increase domestic consumption to offset the impact of a soft-landing in the US and other uncertainties," Perng said.

"In 2001, the central bank's primary goals will be to maintain stability in the foreign exchange market and in consumer prices," he added.

Only if that can be achieved will the central bank look to take other measures to spark the economy, Perng said. He reiterated that the money market has ample funds, implying that there won't be a liquidity crisis here.

Perng said the central bank expects CPI growth this year to be below 2.1 percent, while core CPI will be around 1.6 percent.

However, he said these forecasts are subject to uncertainties, such as fluctuations in international crude prices.

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