| In the first half of 2005, due to soaring international oil prices and pickup in global interest rates, the pace of global economic expansion slowed down. Fortunately, in the second half economies of the U.S., euro-dollar zone, and most Asian nations continued to expand, helping the global economic to achieve steady upturn. According to the forecast by the International Monetary Fund (IMF) in September 2005, the growth rate of the global economy would reach 4.3% in 2005, compared with 2004's 5.1%, and maintain the same level in 2006. It estimated that with the soaring international crude-oil prices and persistently high prices of basic raw materials, inflation rate of developed economies would reach 2.2%, higher than 2004's 2%, which would drop to 2% in 2006. To head off inflation, major countries continued to raise interest rates. The U.S., for instance, hiked interest rates 14 time during the period from June 2004 to January 2006, boosting the federal funds rate from 1% to 4.5%.
At the domestic front, due to weakening of external demand in the first half of 2005, Taiwan's foreign trade slackened and industrial production almost stagnated, leading to a sluggish economic growth rate of 2.73. In the second half, spurred by the business upturn of the global electronics industry, Taiwan's exports resumed rapid expansion, boosting the economic growth rate for the whole year to 4.09%. In the aspect of prices, due to the effect of weather, produce prices rose considerably, which, plus the run-up in domestic oil prices caused by soaring international oil prices, helped push the annual increase of consumer price index (CPI) to 2.3%. However, core CPI, which excludes the price factors of produce, fish, and energy, only inched up 0.65%. The Directorate General of Budget, Accounting, and Statistics, under the Executive Yuan, predicts annual growth rate of CPI will drop to 1.71% in 2006.
In view of the intensified inflationary pressure, caused by continuous economic expansion, the Central Bank of China began to modify its loose monetary policy, initiated in late 2000 into order to cope with deflation, from October 2004, gradually inducing interest rates to return to normal level. As of the end of 2005, the Central Bank of China had hiked various rediscount rates and accommodations rates six times, at a total scale of 0.875 of one percentage point. Short-term market interest rates picked up gradually as a result. In the forex market, the NT dollar appreciated against the U.S. dollar first before switching to devaluation. As of the end of 2005, the NT dollar's exchange rate stood at US$1=NT$32.85, representing 2.84% of devaluation from the level at the end of 2004. Aggregate money supply grew steadily in 2005, when the average annual growth rate of M2 reached 6.22%, a level sufficient to fund the growth of the island economy. |
