Fri, May 12, 2006 - Page 11 News List

Central bank rate hike grows likely

CNA AND BLOOMBERG , TAIPEI

Following the US Federal Reserve's raising of its key interest rate on Wednesday, the 16th straight increase in two years, Taiwan's central bank will likely hike the rediscount rate by half of a quarter percentage point to 2.5 percent by next month, experts said yesterday.

However, this will depend on upcoming economic indexes and consumer prices, they said.

The central bank is planning to hold a board of directors' meeting next month to review the monetary policy. Most analysts anticipate that it will raise the short-term interest rate as it has remained low and inflation risks still exist.

Central bank Governor Perng Fai-nan (彭淮南) said on Tuesday that international financial markets would be affected if the Fed raised its short-term rate again, adding that any monetary policy changes should be made in accordance with each country's situation.

Taiwan's interest rates haven't reached a "neutral" level for the economy after the bank raised rates seven times since October 2004, Perng said.

"They're still some distance away from what I'll call a neutral rate," which will neither stimulate nor tighten the economy, he said.

The central bank lifted the rediscount rate on 10-day loans to banks by an eighth of a percentage point to 2.375 percent in March.

It will auction NT$80 billion (US$2.5 billion) worth of 364-day certificates of deposit today, its fifth sale of one-year debt this year.

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