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Central bank raises interest rate slightly

The central bank toughened its monetary policy yesterday, hiking its benchmark interest rate by 0.125 percentage points and ordering lenders to put aside more saving reserves in an attempt to curb inflation stoked by surging fuel, food and raw material prices.

It was the 16th consecutive quarter since October 2004 that the monetary regulator had adjusted raised the rates as it seeks to stabilize commodity prices without hurting efforts by the new government to shore up domestic demand and the economy.

“It is the central bank’s prime duty to maintain stability of consumer prices,” Governor Perng Fai-nan (彭淮南) told a news conference after a quarterly board meeting. “We have not stayed on the sidelines in the battle against inflation as some in the media have claimed.”

Perng said the central bank decided to raise the discount rate, at which local banks borrow 10-day loans from it, by 12.5 basis points to 3.625 percent, starting today.

Meanwhile, the rates on accommodations with collateral and without collateral will rise to 4 percent and 5.875 percent, respectively, up from their current 3.875 percent and 5.75 percent.

Perng said he hoped the adjustments could contain consumer price growth that reached 3.66 percent in the first five months of this year and is expected to advance further as utility costs are due to rise by 12.6 percent next month.

The central bank also required lenders to set aside more cash in reserves, lifting the ratio on passbook savings by 1.25 percentage points and term deposits by 0.75 points, beginning July 1, Perng said.

He added that the move, intended to check liquidity in the market, will not harm the economic stimulus package proposed by the Chinese Nationalist Party (KMT) administration to boost private consumption and investment.

However, Perng voiced reservations the spending program will push the GDP up to 4.78 percent for this year as the nation’s statistics agency has predicted.

The central bank put the figure at 4.66 percent, he said.

Also See: Central bank to continue fiscal tightening: analysts
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