Mon, Dec 26, 2011 - Page 12 News List

Interest rates expected to stay the same

NOT OPTIMISTIC:Analysts suspect the central bank will keep rates unchanged rather than lowering them amid growing concern about the global economy

By Amy Su  /  Staff Reporter

The central bank is expected to keep key interest rates unchanged at this year’s last quarterly board meeting on Thursday, because it will likely opt to preserve its strength to cope with the potential impact from a potentially worsening eurozone debt crisis next year, economists said.

The central bank issued a report last Thursday saying that Taiwan’s economic growth next year could slow to as low as 2 percent if a new global economic crisis hits.

The unusual move, which indicated the bank’s concerns about the nation’s economy in the near future, sparked speculation that the central bank might cut the policy interest rates on its quarterly board meeting on Thursday instead of holding the rates unchanged.

Before the bank issued the -report, private think tank Polaris -Research Institute (寶華綜合經濟研究院) president Liang Kuo-yuan (梁國源) said the central bank would lower its key interest rates to fuel the nation’s economic growth.

However, Taiwan Institute of Economic Research (台灣經濟研究院) director Yang Chia-yen (楊家彥) said he had not seen a reason for the central bank to cut policy interest rates at present.

“The central bank may need to lower the rates if it’s worrying about a depression and a liquidity shortage,” Yang said by telephone yesterday. “But none of these has happened.”

Yang said the latest report issued by the central bank showed the bank was not optimistic about the global economy next year, an indication that the bank could reserve the rate-cutting tool for a more urgent time.

In addition, the current interest rates in Taiwan have been relative low, Yang added.

“If the central bank cut the key interest rates too early, it would not have enough space for next year, the peak period of European countries’ debt repayment,” Yang said.

Taiwan Research Institute (台灣綜合研究院) presiedent Wu Tsai-yi (吳再益) shared Yang’s view.

“Given the relatively mild economic growth and gentle inflation, the central bank has no motive to adjust the key interest rates,” Wu said, adding that the current level of interest rates can still drive private investment next year.

Meanwhile, a Taipei-based economist at Standard Chartered Bank, Tony Phoo (符銘財), said in his -latest report the bank might use unconventional monetary tools, such as cuts in the reserve requirement ratio and reductions in negotiable certificates of deposit issuance, to replace traditional rate-cutting.

The central bank kept its benchmark interest rates unchanged at its board meeting at the end of September, the first time that it has maintained the policy rates in more than a year.

The rate remained at 1.875 percent, with the collateralized loan rate and the unsecured loan rate standing at 2.25 percent and 4.125 percent, the bank’s data showed.

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