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Deutsche Bank says central bank will cut rates four times

Deutsche Bank said yesterday that Taiwan's central bank is expected to apply four interest rate cuts at 12.5 base points each in line with expected rate decreases in the US Fed Funds rate.

The central bank's move aims to avoid adding upward pressure to the nation's currency, the bank said in an investors' note yesterday.

10TH IN A ROW

Last week, the central bank decided to raise its benchmark interest rate by 12.5 base points for the 10th quarter in a row, lifting its benchmark index to a five-year high of 2.75 percent.

Rising inflation and a desire to narrow the gap in borrowing costs with the US were the main reasons for the rate increase, the central bank said.

But Deutsche Bank said the central bank's rate hike last week was contrary to expectations. It had expected no change as no significant inflation pressure was in sight.

PREDICTED DECLINE

Deutsche Bank predicted that the tendency over the next few years will be for interest rates to decline in tandem with a declining trend in nominal gross domestic production.

This forecast was different to most market speculation of increased rate hikes this year. Central bank Governor Perng Fai-nan (彭淮南) said last week that the interest rates "are not at the neutral level yet."

Perng began using the term "neutral" in September 2004, when he kicked off a series of rate hikes that have brought the cumulative increase to a total of 1.375 percentage points so far.
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