The central bank yesterday stood by its monetary policy stance, saying that while the domestic economy has shown stable improvement, inflationary pressures have eased markedly on the back of falling international fuel prices.
The trend is likely to extend into next year, as oil producing countries have no intention of reducing output in a continued bid to force US shale oil producers out of the market, central bank Governor Perng Fai-nan (彭淮南) said.
Perng’s remarks came after the bank’s board decided to keep policy rates unchanged for the 14th consecutive quarter, with the discount rate at 1.875 percent, the collateralized loan rate at 2.25 percent and the unsecured loan rate at 4.125 percent.
Inflationary pressures, the topmost concern in the bank’s monetary policymaking decisions, are likely to fall between 1.1 percent and 1.2 percent next year, Perng said.
The range is slightly higher than the forecast of 0.91 percent made by the official statistics agency last month, compared with the estimate of 1.18 percent for this year.
Perng downplayed worries linked to sharp declines in oil prices, saying low fuel costs will provide more benefits than harm.
“Lower oil prices are like tax cuts, giving people more money for non-fuel consumption,” the governor said.
Greater consumer spending is a favorable condition for economic growth at home and abroad, Perng added.
Brent crude oil prices are forecast to average US$68.1 a barrel next year, Perng said, citing international energy research institutes.
Perng said the nation will put up a better showing next year compared with this year, while downside risks, noticeably economic slowdown in China, Europe and Japan, lent support to the central bank’s neutral monetary policy stance.
The governor dismissed concerns over wild volatility in the ruble, saying that Taiwanese banks have a small exposure of NT$30.7 billion (US$976.15 million) to Russia and bilateral trade accounts for a tiny 0.86 percent share.
The bank has set its target zone for broad money supply at between 2.5 and 6.5 percent next year, the same as this year, the governor said.
The central bank defended its currency policy and denied charges it has intervened to stop the New Taiwan dollar from gaining value and remained on the sidelines when it weakens.
The local currency has embarked on a course of appreciation since January 1998, trading at between NT$28 and NT$35 against the US dollar, Perng said.
The bank will maintain its dynamic stabilization policy, the governor said.
“Leaning against the wind” operations have effectively helped stabilize the local currency in times of drastic volatility, Perng added.
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