Central bank won't follow Fed in hiking interest rates


Fri, Jul 02, 2004 - Page 10

In the wake of the US' raising of key interest rates on Wednesday, the government will maintain its key interest rates unchanged, central bank officials said yesterday.

The bank will not change its key interest rates for the time being and will maintain its rediscount rate at 1.375 percent, the rate on accommodation with collateral at 1.75 percent and the short-term accommodation rate at 3.625 percent, officials said.

In anticipation of the US interest rate hikes, the central bank had called a board member and supervisor meeting last week in which it was decided that the key interest rates will be maintained at current levels, the officials said.

However, they added that the bank will still watch closely moves to be made by the US Federal Reserve and they stressed that the bank will adjust its monetary policy at any time when necessary.

The officials made the comment after the Fed announced a quarter-point hike in its key interest rates -- the first in four years. The FED move brings the base rate to 1.25 percent.

A market strategist with Citibank in Taipei said that the central bank will continue to monitor both the Fed's pace of boosting its interest rates and Taiwan's pace of economic recovery.

He forecast that the central bank will take time to make adjustments to its policy out of concern that rate hikes might drive investors away just as the economy isbeginning to rebound.

Should the Fed raise its interest rates by 0.5 percent or 0.75 percent and Taiwan's consumer price index continue to grow by 1 percent for months in a row, then it will be time for the bank to make its own rate hikes, he said.

"If major product prices maintain stable in the domestic market this year, the central bank will not do anything in the months ahead," he predicted.

An official at the Ministry of Economic Affairs said that the US interest rate hikes are not expected to affect Taiwan's exports.

Saying that there are no signs of any negative impact on outbound shipments for the time being, the official pointed out that a stronger US dollar will in turn benefit exports in the short term.

Also see story:

Fed lifts US interest rates, pledges gradual course