Tue, Dec 30, 2003 - Page 11 News List

Central bank leaves rates alone; official coy on future

SIT TIGHT Perng Fai-nan, governor of the central bank, says `managed float' policy will stay in force, with the government only intervening in exceptional situations

By Joyce Huang  /  STAFF REPORTER

The central bank yesterday decided to keep current interest rates unchanged while vowing to maintain the stability of the nation's currency, central bank Governor Perng Fai-nan (彭淮南) said yesterday.

"The central bank will continue to adopt flexible monetary policies to help revive economic growth," Perng told a press conference yesterday afternoon after the bank's quarterly policy meeting.

According to Perng, the bank's board decided to keep the rediscount rate, used by commercial lenders for 10-day loans, unchanged at 1.375 percent.

As a result of capital flows from the bond market to the stock market -- whose benchmark index had gained 32 percent over one year earlier to hit 5,857 points last Friday -- the long-term interest rate has recently seen an uptick, the bank's statement added.

The 10-year bond yield rate hit as high as 2.87 percent last month, but declined slightly early this month, according to the bank.

When asked if there is any likelihood that the nation's interest rates will be raised next year, Perng did not give a definite answer, but said that low rates helped boost domestic demand, which this year only contributed 1 percentage point to the nation's estimated 3.15 percent growth in gross domestic product.

Perng, however, said he expected domestic demand to pick up next year if public spending effectively helps lower the nation's jobless rate and turn around the local economy.

Perng also said that the nation's exchange-rate system is a "managed float" and, in principle, is determined by market forces.

Therefore, market forces will decide whether the New Taiwan dollar will further strengthen against its US counterpart, he said. "The central bank will only step in to maintain the stability of the exchange rate on seasonal or irregular factors that might disturb the market," he said.

The New Taiwan dollar declined by 2.06 percent to close at NT$34.052 against the US dollar last Friday. Amid speculation that the central bank had intervened, the NT dollar yesterday declined yesterday by a further NT$0.09 against the greenback.

Local Chinese-language media reported that speculation is rife in the market that the NT dollar might further consolidate next year.

But Perng yesterday refused to comment on the NT dollar's future movement, saying that most research bodies' predictions on the NT dollar are "inappropriate and incorrect."

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