Mon, Jun 18, 2012 - Page 12 News List

Experts expect interest rates to stay unchanged

WAITING?One expert said increases in fuel prices and electricity rates had added to inflationary pressure, giving the central bank little room to raise interest rates

Staff writer, with CNA

Several academics on Saturday said they expected the central bank to leave its key interest rates unchanged at an upcoming -policymaking meeting because the nation faces a slowing economy and upward pressure in domestic consumer prices.

The central bank has brought its schedule forward one week to hold the policymaking meeting on Thursday.

Polaris Research Institute (寶華綜合經濟研究院) president Liang Kuo-yuan (梁國源) said the -earlier-than-expected policymaking meeting showed the central bank wanted to respond in a timely manner to the escalating debt problems in the eurozone, which have dealt a serious blow to the global economy.

Liang said debt-ridden Greece, which held parliamentary elections yesterday, could send further ripples through the global financial markets if the anti-austerity camp wins.

He said the bank’s meeting was expected to help monetary policymakers take action as soon as possible to counter any adverse changes after the vote.

Liang said that as an integral part of the global economy, Taiwan had felt the pinch of the European debt crisis and seen its GDP growth slowing. As a result, the central bank was expected to keep liquidity ample to boost the economy.

However, Taiwan is facing upward pressure on local consumer prices after recent downpours triggered an increase in food prices, Liang said, adding that a cut in interest rates could potentially exacerbate inflationary pressure.

In light of that, the central bank was likely to maintain current interest rate levels, the academics said

Since the end of June last year, the bank has kept its interest rates unchanged, with the discount rate at 1.875 percent, the rate of accommodations with collateral at 2.25 percent and the rate of accommodations without collateral at 4.125 percent.

Chu Hao-min (朱浩民), an economist at National Chengchi University, said that recent increases in fuel prices and electricity rates had also boosted inflationary pressure, adding that as a result, the central bank had little room to raise interest rates to lift the local economy.

In addition, Chu said that with interest rates already low, if the central bank cut rates now, real interest rates could become negative after factoring in inflation.

The government has lowered its forecast of GDP for this year to 3.03 percent from an earlier estimate of 3.38 percent. The consumer price index for last month rose 1.74 percent from a year earlier.

Chung-Hua Institution for Economic Research (中華經濟研究院) president Wu Chung-shu (吳中書) said the central bank needed more time to observe the global economic climate before deciding whether to start a cycle of interest rate reductions.

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