Fri, Dec 12, 2008 - Page 1 News List

Rates cut 75 basis points

BANK’S LATEST MOVE The discount rate and the rates on accommodations with collateral and accommodations without collateral have all been reduced, effective today

By Crystal Hsu  /  STAFF REPORTER

The central bank yesterday lowered key interest rates by 75 basis points, the biggest cut in 26 years, in a bid to address the economic downturn and ease the financial burden on companies and home owners.

Central bank Governor Perng Fai-nan (彭淮南) told a news conference that the bank’s board would reduce the discount rate, the rate on accommodations with collateral and the rate on accommodations without collateral to 2 percent, 2.375 percent and 4.25 percent respectively.

The cut, the fifth in two-and-a-half months and the biggest since December 1982, will take effect today, Perng said, attributing the decision to weaker-than-expected exports.

“Downside risks heightened, as shown by the sharp decline in exports last month,” Perng said. “The trend will crimp industrial output, investment plans, consumer spending and other economic activity.”

Outbound shipments, the mainstay of the nation’s economic growth, contracted for a third month last month by 23.3 percent, with China-bound goods plunging a record 38.5 percent.

The regulator voiced concern about rising unemployment, unpaid leave and other belt-tightening measures by companies, saying they would hamper efforts to combat recession.

To address that, the central bank has cut rates by 1.625 percentage points since late September. Perng said the agency would maintain loose monetary policy and convene board meetings as frequently as necessary.

Perng said he understood the rate cuts were draining incomes of people with bank savings and asked the public to put the economy ahead of personal gain.

Real estate agency Evertrust Rehouse (永慶房屋) said households with a NT$5 million (US$149,000) mortgage could save about NT$37,500 on their annual interest payments following the latest cut.

Perng dismissed concern about deflation, adding that the GDP was forecast to grow in the second quarter of next year, while the yearly consumer price is expected to rise 0.37 percent.

The central bank also set the target money supply range, or M2, at between 2.5 percent and 6.5 percent for next year.

Liang Kuo-yuan (梁國源), president of Polaris Research Institute (寶華綜合經濟研究院), said the cut showed the economy was in worse shape than the government was willing to admit.

"It will be very difficult, if not impossible, for the economy to recover in the second quarter of next year,” Liang said by telephone. “It makes more sense to expect growth in the third quarter if the government carries out the stimulus package effectively.”

The economist said the central bank may announce more rate cuts in the near future if key economic pointers such as export, industrial output and jobless figures continue to slump.

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