After the central bank wrapped up its final policy-making meeting of the year yesterday, it decided to keep the rediscount rate at a record low 1.625 percent in an effort to stimulate the economy.
The rediscount rate is the rate charged to commercial banks for 10-day loans. The central bank also maintained its secured loan rate at 2 percent and its unsecured loan rate at 3.875 percent.
At a press conference held immediately after the meeting, central bank Governor Perng Fai-nan (彭懷南) said he expects the nation's economy to grow 3.43 percent and consumer prices to rise 0.35 percent next year.
Asked why the central bank's economic forecast next year is better than the 3.38 percent predicted by the Directorate General of Budget, Accounting and Statistics, Shih Yen (施燕), director general of the central bank's economic research department, said the bank expects Taiwan's exports to continue to expand and domestic demand to improve.
He said the likelihood of US military action against Iraq and a potential spike in oil prices could lower the GDP by 0.2 percent.
Taiwan, which is recovering from its worst economic slump in decades, is counting on rising exports to China and the US to reach 3.38 percent economic growth this year.
Low interest rates are helping to keep the New Taiwan dollar from rising, making exports more competitive.
The local currency has fallen 3.6 percent against its US counterpart in the last six months, making it the worst-performer in the region.
Perng said he the unit has been relatively stable against the greenback, adding that the central bank will intervene if currency fluctuations become too erratic.
"The exchange rate of the NT dollar should reflect the nation's economic fundamentals," Perng said.
The central bank has lowered its benchmark interest rate 14 times since December of last year. Banks, nevertheless, have been reluctant to lend in an effort to lower bad-loan ratios. Loans by banks fell in November compared to the same month last year, the central bank said.
"The interest-rate policy is not very effective now because of the credit crunch," said Franklin Poon, an economist at ABN Amro Asia Ltd. "In terms of the economic outlook, it all depends on external factors."
The central bank also predicts that the money supply will increase 3 percent and 7 percent next year as more capital is channeled into bonds instead of stocks.
This is the first time that the central bank has included bond funds in the money-supply forecast.
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