CBC Decides to Keep Interest Rates Unchanged

Taipei, June 26, 2009 (CENS)--In view of the gradual stabilization of the economy, the absence of inflationary pressure, and financial stability, the board of directors and supervisors of the Central Bank of China (CBC) announced, for the second time running, to maintain the policy interest rates unchanged after its regular meeting yesterday (June 25).

Perng Fai-nan, CBC governor, pledged to embrace proper monetary policies, in line with changes in economic and financial situation, especially the factors of unemployment and inflation.

He noted that CBC's existing loose monetary policy has contributed to the upturn of the economy, expressing, though, concern over the possible slowdown in banking loans in the second half, due to profit decline of listed firms, which would lead to reduced demand for working capital.

Insiders believe that after seven cuts totaling 2.375 percentage points since September of last year, policy interest rates will remain at the existing levels for a while, including 1.25% for discount rate, 1.625% for accommodations with collateral, and 3.5% for accommodations without collateral, unless the economy aggravates further.

This is the second time for the CBC's board of directors and supervisors to decide maintaining the policy interest rates unchanged, following its previous meeting in March.

At a press conference explaining the resolution, Perng also expressed a conservative outlook for the economy, saying the global economy will not resume the 2008 level until 2011. He pointed out that the economy already bottomed out in the first quarter but the strength of the recovery is very weak.

"The chance for the economy to recover in a V pattern doesn't exist, and the best outcome is for it to recover in an U pattern," said Perng. The recovery pace of Europe and Japan will be even slower than the U.S. and their economies won't recover even in 2011, according to Perng.

In view of the limited domestic market, said Perng, it's unlikely for Taiwan's economy to recover until major economies worldwide have done so.