Thu, Sep 23, 2004 - Page 10 News List

Central bank expected to raise rates

MONETARY POLICY Analysts are predicting minor adjustments to domestic rates could follow on the heels of the Fed's decision to hike US overnight rates

By Jessie Ho  /  STAFF REPORTER

The central bank is likely to raise its key interest rates next week after the US Federal Reserve raised the federal funds rate on overnight loans between banks up to 1.75 percent from 1.5 percent, observers said yesterday.

The central bank is scheduled to hold its quarterly monetary policy meeting next Thursday.

"Whether the rates will be changed will be determined after the meeting," a central bank official, who declined to be named, told the Taipei Times yesterday.

The central bank has kept its benchmark rediscount rate, charged to commercial lenders for 10-day loans, at 1.375 percent since paring it 15 times from December 2000 to June last year.

"I think the central bank will soon announce the hikes to modulate the financial markets," Cheng Cheng-mount (鄭貞茂), vice president of Citibank Taiwan, said yesterday.

"I estimate that the range would be minor, about 0.125 percentage points, as the government tends to gradually tighten lending," Cheng said.

The central bank last week adjusted the overnight interbank rates from 1.10 percent to 1.12 percent, which is an omen of the impending hikes in interest rates, he said.

In addition, a stable growth in GDP this year and pending rises in consumer prices, driven up by soaring oil prices, would make it a good time to ratchet up the rates, Cheng said.

The Directorate General of Budget, Accounting and Statistics (DGBAS) said last month that the nation's GDP is expected to grow 5.3 percent in the third quarter.

The unemployment rate rose to 4.67 percent last month from 4.62 percent in July, while the consumer price index fell 0.4 percentage points last month from July, according to the DGBAS.

"Judging from these economic indexes, it's about time for the central bank to raise the rates, or inflation may be around the corner," said Chou Ji (周濟), director of the Center for Economic Forecasting at the Chung-Hua Institution for Economic Research (中經院).

While pressure on the central bank to raise rates mounts, a Barits International Securities (倍利證券) analyst said the bank might keep the rates unchanged after next week's meeting.

"There is no inflationary pressure for the time being and Taiwan's consumer price growth rate is lower than that of China and the United States," Lee Chih-an (李志安) of Barits, a unit of Mega Financial Holdings (兆豐金控), said in a report published on the company's Web site.

Lee said the central bank doesn't have to raise the rediscount rate, because there is still a healthy gap of 30 percentage points between the rediscount rate and the overnight interbank rate.

"Instead, the central bank can try to lift the overnight lending rate or increase the yield rate for non-negotiable deposit certificates to gauge market response," Lee said.

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Fed raises interest rates

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