Taiwan could face deflation risks: CBC official

Taipei, May 20, 2003 (CENS)--A Central of Bank of China official yesterday publicly acknowledged the possible risks from deflation as the impact from SARS continues expanding to more business sectors in Taiwan.

Shih Yen, director of the CBC's Economic Research Department, said the CBC will review all key economic indicators next month to decide if to lower the interest rate as a relief measure to help enterprises cope with the threats from the severe acute respiratory syndrome epidemic.

When delivering a speech in January, CBC Governor Perng Fai-nan ruled out the deflation risks and said Taiwan will at most face "low deflation." But following the U.S.-led war on Iraq and the onslaught of SARS, the core commodity price index for the first four months dropped 0.53% from the same period of last year while the consumer price index also shrank 0.19% due to reduced spending.

The annual money supply growth rate also hit a new record low of only 1.76% in March.

Although the experts at the International Monetary Fund issued a warning that Taiwan is faced with "high deflation," Finance Minister Lin Chuan said yesterday that the island's economy has not yet reached that stage.

But Lin admitted that the government's tax revenues will slide sharply if SARS is not put under control by June or July.

He estimated that the SARS fears could cut a record NT$120 billion from the government's tax revenues for 2003.

Officials at the Council for Economic Planning and Development suggested the increased spending on public construction projects to help cope with the situation.