Tue, Aug 14, 2007 - Page 12 News List

Central bank chief says inflation rate can be kept low

By Kevin Chen  /  STAFF REPORTER

The nation's inflation rate has been kept at a low and stable level in the past few years thanks to the central bank's strategy, central bank Governor Perng Fai-nan (彭淮南) said in a speech during a meeting at the Presidential Office yesterday.

"Compared with other countries, Taiwan's inflation rate is being maintained at a low and steady level, which can be justified by the rate's average figure and its standard deviation," Perng said, according to a copy of the speech posted on the Presidential Office's Web site.

Between 1998 and last year, the average inflation rate was 0.79 percent with a standard deviation of 0.95 percent, Perng said, underlining his confidence on the price front.

Perng said the biggest challenge facing the central bank in a time of fast-changing global financial markets was balancing a stable currency exchange and monetary policy independence.

The second challenge was the problem of excess savings that has developed in the nation for many years, he said.

Perng said excess savings amounted to as much as NT$5.46 trillion between 1997 and last year. The central bank used public market operations and various instruments to absorb US$5.3 trillion of these funds from the money markets, he said.

But he stressed the key to resolving the problem of excess savings is how the government boosts domestic investment, not just the central bank's monetary policy.

Perng's speech comes amid concerns that rising commodities prices worldwide will eventually force manufacturers to pass on increased costs to consumers.

The consumer price index (CPI) declined 0.34 percent last month from a year earlier due to declines in vegetable and fruit prices, the Directorate General of Budget, Accounting and Statistics (DGBAS) said on Aug. 6.

While the CPI for the first seven months of the year increased just 0.47 percent from a year earlier, the wholesale price index -- which tracks prices of raw materials -- was up 6.65 percent, DGBAS data showed.

The Cabinet announced on Aug. 1 that it would halve import tariffs on seven agricultural products for six months beginning on Aug. 6.

The Cabinet is expected to announce a revised floating oil pricing mechanism today. The mechanism was suspended two weeks ago amid widespread complaints.

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