Taipei, March 28, 2008 (CENS)-To both curb inflation and appreciation of the NT dollar, the Central Bank of China (CBC)`s board of directors adopted various measures on March 27, including raising interest rates by 0.125 of a percentage point; differentiating B deposit reserve account into two sectors accruing different interest rates, one with funds from term deposits and the other from demand deposits; and slashing foreign-currency deposit reserve rate.

Following such adjustment, the discount rates, both for accommodation with collateral and without collateral, climb to 3.5%, 3.85%, and 5.75%, respectively. The adjustment represents the fifth interest-rate hike by the CBC over the past three and a half years, totaling 2.125 percentage points.

The CBC offers term-deposits in B reserve account 2.75% annual interest rate and 0.25% to demand-deposits, rather than the existing cross-the-board 1.5%, in a bid to encourage moving of funds from demand to term deposits. Meanwhile, it slashed foreign-currency deposit reserve rate to 0.125%, from the original 5%, in order to narrow interest differential between NT and U.S. dollar deposits, thereby easing the pressure on NT dollar to rise.

Fai-nan Perng, CBC governor, said that the latest interest-rate hike is to curb inflation, noting that consumer price index (CPI) is likely to reach 2.1% this year, higher than the government`s target of keeping it at 2% as part of its economic development plan. In addition, the real interest rate remains rather low. Perng pointed out that micro-adjustment of interest rate can ease the public`s anxiety towards inflation, adding that the CBC will closely monitor related economic figures to decide on further interest rates hikes.

Meanwhile, Perng reported yesterday that the CBC is trying to dissuade foreign investors from speculating in NT dollar, noting that the CBC has the option of fining such speculators or even revoking their trading rights altogether.

Perng pointed out that outstanding amount of foreign investors` NT-dollar account now stands at NT$360.3 billion, NT$200 billion more than NT$174.2 billion which has been used by foreign investors to purchase Taiwan stocks, accusing candidly that the extra amount is targeted at NT dollar speculation.

(by Ben Shen)