Central bank leaves rates alone

KILLJOY: The central bank declined to depict the decision as a sign of recovery, saying the US economy had yet to bottom out and that Taiwan relied heavily on it

By Crystal Hsu  /  STAFF REPORTER

Fri, Mar 27, 2009 - Page 12

The central bank yesterday left interest rates untouched, citing improved economic data at home and in the US, but said it would maintain its loose monetary policy.

The top monetary regulator, which has cut rates seven times in the last six months, said the economic outlook remained cloudy and could necessitate more rate cuts down the road.


“The board decided not to adjust the interest rates as export orders have improved and local share prices have rebounded,” central bank Governor Perng Fai-nan (彭淮南) said after the quarterly board meeting.

The discount rate remains at 1.25 percent, the rate for lending costs on accommodation with collateral remains at 1.625 percent and accommodation without collateral at 3.5 percent, Perng said.

The central bank has lowered the discount rate by 2.375 percentage points in the seven cuts since late September.

Export orders fell 22.27 percent year-on-year last month, compared with a 41.67 percent drop in January, the Ministry of Economic Affairs said on Tuesday.

Meanwhile, the TAIEX gained 7.28 percent last month, with the rally set to intensify this month.

Perng also said borrowing rates were low enough and the markets were swarming with idle funds.

“The aggregate money supply rose 6.68 percent year-on-year in the first two months — more than enough to meet economic activity,” the governor said.

He declined to depict the central bank’s decision as a sign of recovery or an end to its series of rate cuts, saying the US economy had yet to bottom out and that Taiwan relied heavily on the US.

“The dependence reading is 8.2 on a scale of zero to 10,” Perng said. “It is true that rush orders and tourists [from China] are helping to mitigate the recession.”


Analysts offered different readings of the central bank’s move.

Liang Kuo-yuan (梁國源), president of Polaris Research Institute (寶華綜合經濟研究院), who had predicted the central bank would halt rate cuts this month, said cuts were highly likely later this year.

“The [domestic economy] remains in bad need of stimulation,” Liang said by telephone. “Rush orders and rallies in share prices have led many to misread the economic woes. They stemmed from Wall Street and any talks of remedy are futile unless the US economy stabilizes first.”

Tony Phoo (符銘財), chief economist of Standard Chartered Bank, said the economy would remain sluggish but further rate cuts were unlikely.

“The cycle [of rate cuts] has come to an end,” Phoo said by telephone. “The economy, while not getting significantly better, is not getting worse.”