Central Bank of China (CBC, 中央銀行) officials yesterday applauded the rate cuts by the US Federal Reserve overnight, saying the move helps the central bank maintain its current loose monetary policy.
Lee Sheng-yen (
The demand for cash during the Chinese New Year is expected to jump an additional NT$300 billion above normal levels.
"We certainly welcome the US rate cuts as we believe that they will provide us with additional leverage to maintain our loose monetary policy currently," said Lee.
In respond to the US rate cuts, several domestic banks reduced their US dollar deposit rate by from 0.2 percent to 0.5 percent. These banks include the Bank of Taiwan (
Lee said he is surprised to see US rate cuts because in the past, the Fed would not make any big move until it saw a clear economic sign. The sudden US rate cut may suggest the growth in the US economy being slowing faster than Fed anticipated, Lee pointed out.
Another ranking central bank official, who requested anonymity, said the CBC will continue to keep the favorably loose monetary policy at the current stage, but would not rule out the possibility of adjusting the policy if Fed continues to cut its rates in the near future.
But the official declined to outline what specific measures the central bank will take in that respect, saying that the central bank certainly would call an extraordinary board of governors' meeting before the next scheduled policy meeting in late March to discuss pertinent measures.
Analysts at the Dresdner Asset Management (德盛投資), however, suggest that CBC might cut the reserve requirement rate by 0.25 percent before Chinese New Year, in order to relax the expected tightening of liquidity prior to the traditional holidays, according to a statement from Dresdner yesterday.
Meanwhile, Chou A-ting (周阿定), director general of CBC's foreign exchange department, said the Fed move will help ease depreciation pressure on the New Taiwan dollar against the US dollar, according to a BridgeNews report yesterday.
"As far as international financial markets are concerned, I think the Fed decision will help avert a hard-landing in its economy and this is a good news for everybody," Chou added.
Chou said the gap between the US dollar- and the New Taiwan dollar-denominated interest rates is expected to narrow further, and this "will help reduce incentives for people to place their money in foreign currency deposits."
But it remains to be seen whether the main Asian currencies will all benefit from the US rate cuts as there are still domestic factors -- political and economic -- that may continue to plague the currencies in this region, said Chou.
Dresdner analysts agreed and said that the depreciation pressure on the local currency against the greenback will remain in the short term, if the central bank prefers a weak NT dollar to boost Taiwan's exports.
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