Key interest rates remain unchanged

MORE OF THE SAME::One expert said he expected the central bank to hold rates steady, unless global economic conditions deteriorated into the first quarter of next year

By Amy Su  /  Staff Reporter

Fri, Dec 30, 2011 - Page 12

Faced with a moderate economic growth rate, slightly higher inflationary risks and already low interest rates, the central bank yesterday chose to leave its benchmark interest rates unchanged.

The bank’s discount rate will remain at 1.875 percent, with the collateralized loan rate and the unsecured loan rate staying at 2.25 percent and 4.125 percent respectively.

With that decision, the central bank has left its policy rates unchanged for two straight quarters, after increasing rates in the previous five quarters.

The decision was based on the belief that the current rates are low enough to “maintain price and financial stability and support economic growth,” the bank said in a statement.

“Global economic momentum for next year will be slightly lower than that for this year ... but we maintain a cautiously optimistic view of Taiwan’s economy,” central bank Governor Perng Fai-nan (彭淮南) told a media briefing after the bank’s quarterly board meeting yesterday.

Taiwan’s economy could not avoid being impacted by external downside risks, because the export sector accounts for about 70 percent of overall economic growth, Perng said.

Last month, the government forecast 4.19 percent GDP growth for next year.

As for consumer prices, the nation’s headline inflation rate showed moderate growth by rising 1.37 percent in the first 11 months of the year from a year earlier, the central bank’s statement said.

However, this year’s relatively lower comparison base heightens the risk of rising inflation next year, Perng said.

In addition, the bank pointed out that cost-push inflation was another uncertainty that needed to be carefully watched, with the New Taiwan dollar’s recent depreciation against the US dollar indicating that pressure still exists.

The bank’s interest-rate decision was in line with the general market view.

“Since Taiwan’s real interest rate is very low and manufacturers do not have major liquidity problems, a rate cut will not result in a tangible boost to the economy,” Raymond Yeung (楊宇霆), a Hong Kong-based economist at ANZ Research, said in a research note.

As the central bank will adhere to its current monetary policy stance by maintaining a stable interest rate and exchange rate regime, Yeung said the investment environment would probably be dominated by a period of low fixed income yields and a depressed stock market, possibly for the whole first half of next year.

Tony Phoo (符銘財), a Taipei-based economist at Standard Chartered Bank, said he expected the bank to maintain its cautious stance and hold rates steady, unless global economic conditions deteriorate into the first quarter of next year, which could warrant a change in its stance.

Separately, the central bank also announced yesterday that the annual growth target for the M2 money supply next year was unchanged. The target is set between 2.5 percent and 6.5 percent, data showed.