Fri, Jun 26, 2009 page12

• Central bank keeps interest rates low

  MORE OF THE SAME Cheng Cheng-mount, head economist at Citigroup Taiwan Inc, said the central bank is unlikely to adjust interest rates before the first half of next year

  • By Crystal Hsu / STAFF REPORTER
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  The nation’s central bank yesterday kept its benchmark interest rates at the current low level on concerns the economy remains sluggish, though the downturn bottomed out in the first quarter.

  The top monetary regulator has left rates unchanged since February, when it cut the discount rate for the seventh time in six months to 1.25 percent.

  “The board decided not to adjust the interest rates now that global financial markets have regained stability and economic woes have declined,” central bank Governor Perng Fai-nan (彭淮南) told a press conference.

  The rates on collateralized loans will stay at 1.625 percent and 3.5 percent on unsecured loans, Perng said.

  FORECAST

  He said the economy, which contracted 10.24 percent, will recover growth in the fourth quarter, based on a statistics agency forecast.

  “In fact, GDP is expected to turn positive this quarter from the earlier quarter,” Perng said, adding that the economy will have to wait until mid-2011 to return to the pre-recession level.

  The governor dismissed inflationary pressure, saying that commodity prices would remain stable in light of weak demand even though fuel and raw material costs picked up considerably in recent weeks.

  Perng said the central bank would respect the market mechanism regarding the value of the local currency but would not rule out intervention to stem irregular activities such as an influx of speculative money.

  DIFFERENT MOVES

  Liang Kuo-yuan (梁國源), president of Polaris Research Institute (寶華綜合經濟研究院), said the central bank would maintain its current monetary policy unless its counterparts in major countries make different moves.

  “A rate change too early or too late will discount the efforts to bail out the economy,” Liang said. “The central bank will take cues from the global trend when weighing its next steps as the nation’s small and open economy is susceptible to external influence.”

  Cheng Cheng-mount (鄭貞茂), head economist at Citigroup Taiwan Inc, expressed similar views, saying the central bank is unlikely to adjust interest rates before the first half of next year.

  However, Cheng said the agency should watch out for money aggregates readings now that the broad M2 measure has exceeded its target range of between 2.5 percent and 6.5 percent for this year.

  The gauge increased 7.35 percent year-over-year last month on capital inflow while the narrow M1B gained 12.95 percent as more funds flowed from time deposits to demand saving accounts, the central bank data showed.

  “The central bank should take steps to absorb excess capital,” Cheng said by telephone.

  Stock and currency markets are unlikely to witness drastic fluctuations today as investors had expected the central bank to keep the rates untouched, analysts said.

  EXCESS CAPITAL

  Eric Lai (賴建承), an analyst at Marbo Securities Consultant Co (萬寶證券投顧), said the local bourse had grown inured to excess capital that helped push up the TAIEX by 40.65 percent this year.

  A currency dealer at a local bank said the NT dollar would remain stable in the short term after the central bank reiterated its dislike for excessive fluctuations.
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