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Rediscount rate cut by half a point

Taiwan's central bank reduced its key interest rate half a percentage point to a record low, matching cuts in the US and Europe aimed at restoring investor confidence after last week's terrorist attacks in the US.

The central bank cut its rediscount rate, charged to commercial lenders for 10-day loans, to 2.75 percent from 3.25 percent, the ninth reduction since December and the biggest since October 1992. Nine of 14 analysts polled by Bloomberg News expected the decision.

Even before last Tuesday's attacks on the World Trade Center and the Pentagon threatened to shake US consumer confidence and tip the world's largest economy into recession, Taiwan's central bank was ready to lower borrowing costs to bolster an economy in its worst slump in a quarter century.

"Slowing economic activity means that rates could go lower still, particularly if central banks in the US and Europe cut further," said Michael Newton, an economist at HSBC Holdings Plc in Hong Kong, who expects the island's economy to shrink 3 percent this year.

Taiwan's economy contracted for the first time in 26 years in the second quarter, sliding 2.4 percent from a year earlier. The government expects a 0.4 percent decline for all of 2001, which would be the first full-year contraction since the government started keeping records in 1952.

"Weak economic sentiment, rising unemployment and unexpected international affairs" prompted today's decision, the central bank said on its Web site.

Falling Exports A stable currency and tame inflation also cleared the way for a rate cut. The NT dollar has gained about 0.4 percent against the US dollar in the past three months, and consumer prices rose just 0.2 percent in August from July.

Exports of mobile phones, computers and other goods, which account for about half of Taiwan's economy, dropped 26 percent in August from a year earlier, the sixth decline and the biggest on record. Taiwan's exports have been hurt by the economic slump in the US and slowing world demand for electronics.

The terrorist attacks are expected to deal another blow to the US economy, whose second-quarter growth was already the slowest in eight years. US customers are the biggest buyers of Taiwan's exports.

European Central Bank, Bank of Japan, and US Federal Reserve policy makers cut their benchmark interest rate a half percentage point yesterday to 3 percent, the lowest since February 1994, and the European Central Bank cut its key rate by the same amount to 3.75 percent. The central banks of Canada, Sweden and Switzerland also lowered rates.

The Bank of Japan said it would announce a policy decision yesterday, shortening its two-day meeting. That fueled expectations the bank, which already trimmed rates to near zero in March, will inject more money into the banking system.
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