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Growth to stay steady despite pressures: analyst

With higher oil prices looming and the nation's export momentum weakening, Standard Chartered Bank (Hong Kong) Ltd maintained its forecast for Taiwan's economic growth for this year at 4 percent, the bank said yesterday.

Interest rates will rise steadily to curb inflation and prevent a South Korean-style, boom-and-bust consumption cycle, said Tai Hui (許長泰), an economist at Standard Chartered, whose primary focus is tracking economic and financial developments in the Greater China region.

Low interest rates in 2002 and 2003 prompted South Koreans to boost their consumption. The resulting huge debts dragged down the nation's economy last year, a slump Seoul is still working to remedy, he said.

Hui predicted that Taiwan's central bank will raise benchmark interest rates by a total of less than 1 percentage point this year to bring the current "negative" real interest rates -- interest rates minus the rate of inflation -- back to a normal level.

On March 24, the central bank announced it would hike the rediscount rate to 1.875 percent, while boosting the secured accommodations rate and the unsecured loan rate to 2.25 percent and 4.125 percent, respectively.

Standard Chartered predicted that the NT dollar will remain stable against the greenback, fluctuating between NT$31.3 and NT$31.8 to the US dollar.

The NT dollar finished at NT$31.513 on the Taipei foreign exchange market yesterday.

Steady domestic demand and strong government spending will provide growth impetus, Hui said but the soft patch in the semiconductor industry and volatile oil prices are negative factors.

Powerchip Semiconductor Corp (力晶半導體), Taiwan's biggest memory chipmaker, on Tuesday reported its lowest quarterly earnings in the past four quarters, citing a price slump.

The price of dynamic random access memory (DRAM) chips fell 25 percent in the first quarter to below US$3 per unit, the company said.

"Taiwan will need strong consumption and investment to prop up growth momentum," Hui said. "Political factors or cross-strait policies would not cause any impact as the public has become accustomed to such variations."
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