Central bank clarifies rates

Taiwan's real interest rate level is not the lowest in the world, the central bank said yesterday as it tried to dispel public concern over developments in wealth-eroding inflation, while dismissing an earlier Chinese-language newspaper report.

"Based on the central bank's statistics, Taiwan's real interest rate for one-year deposits is still higher than that of Hong Kong, Japan, Thailand, China and Singapore," the bank said in a statement.

The real interest rate -- calculated by subtracting the inflation rate from the nominal interest rate -- is 0.88 percent in Taiwan, as the nation's one-year deposit rate stays at 2.54 percent on average among local banks while the consumer price index is expected to grow 1.66 percent this year over last year, the central bank's tallies showed.

This 0.88-percent figure compares with Hong Kong's 0.86 percent, Japan's 0.413 percent, Thailand's 0.255 percent, China's minus 0.74 percent and Singapore's minus 0.81 percent, according to the bank's data.

In the central bank's statement, the UK enjoys a rate as high as 3.59 percent, followed by South Korea's 3.02 percent and the Euro zone's 2.835 percent. The US' real interest rate is 1.66 percent, tallies showed.

The Apple Daily reported yesterday that Taiwan's real interest rate was the lowest in the world and warned that depositors would lose the value of their investments because the interest earned falls below the rates of inflation if they keep their money in the banks.

The central bank's remarks on the real interest rates came two days before it is scheduled to hold its quarterly board meeting tomorrow to discuss its monetary policy.

It is unusual, however, that the bank would make a comment like this in the days before the meeting as it would spur market speculations about its interest rate move.

Analysts have forecast an increase of between 0.125 and 0.25 percentage points in the bank's benchmark interest rate, after the bank has been raising interest rates for 13 consecutive quarters over the past four years to stem inflation.