Fri, Jun 25, 2004 - Page 11 News List

Central bank decides to leave interest rates alone

MONETARY POLICY The bank's board of directors decided to leave the nation's interest rates unchanged, despite an expected hike by the US Federal Reserve

By Joyce Huang  /  STAFF REPORTER

The central bank yesterday decided to keep the nation's interest rates unchanged despite the possibility that the US Federal Reserve could decide to raise its interest rates slightly next week, with the market expecting Taiwan to follow suit.

"After taking a mild economic recovery in the second half of the year and low inflationary risks into consideration, the nation's interest rates will remain the same," the central bank said in a statement released yesterday afternoon after its board of directors' quarterly meeting.

The board decided to keep the rediscount rate, charged to commercial lenders for 10-day loans, unchanged at 1.375 percent, according to the statement. It also decided to keep the rate on accommodations with collateral at 1.75 percent and the rate on accommodations without collateral at 3.625 percent.

Shrugging off all questions to clarify whether Taiwan will follow the US' expected interest-rate increase, central bank Governor Perng Fai-nan (彭淮南) yesterday told a press conference that "any such decision will be discussed and made at the meeting of the bank's board of directors, which is convened on a quarterly basis, although a provisional meeting can be called."

Perng had said last month that Taiwan might not follow the US Federal Reserve if it were to raise interest rates, since "monetary policy decisions should be country-specific and cross-country synchronization of monetary policy is not necessarily desirable."

However, Hong Kong and Shanghai Bank Corp (HSBC), the world's second-biggest bank by market value, said yesterday that it believes Taiwan is likely to follow suit if the Fed raises interest rates.

Cartinal Pun (潘靜嫻), head of the bank's global markets division, said yesterday the Fed is likely to raise interest rates by 25 basis points on Wednesday to ease the US' growing inflationary concerns.

HSBC forecasts that US interest rates would rise to 1.25 percent in August and go up another 0.25 percentage points every two to three months to hit 3 percent in the third quarter next year, according to Pun.

She said she expects Taiwan to follow suit and raise interest rates, since the central bank usually keeps its interest-rate policy in line with that of the Fed, having cut the benchmark interest rate to a record-low 1.375 percent in 15 reductions between December 2000 and June last year.

Pun said yesterday that the NT dollar is expected to continue to consolidate from its current level of NT$33.75 against the greenback to NT$32.5 in the fourth quarter of this year.

"Good performance of domestic equity markets is likely to push the NT dollar higher," Pun said yesterday at a seminar held to launch the bank's global payments and cash management drive in greater China.

In light of better-than-expected economic growth and banks' credit expansion, the domestic M2 growth rate in the first five months was higher than in same period last year, leveling out at 7.66 percent, according to the central bank.

In addition to the lower base of last year, the reason behind the nation's rising money supply has something to do with the NT$200 billion which is saved in inactive accounts for potential foreign stock investments, Perng said.

Perng vowed to keep a close eye on the nation's money-supply developments, saying that the bank might adopt necessary measures to prevent irregular cash flows.

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