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Talk of the Day -- Interest rates, exchange rates to remain stable

2012/06/20 21:25:29

The Central Bank of the Republic of China (CBC) is scheduled to hold its second quarterly board meeting Thursday.

As recent flooding has affected domestic vegetable and fruit prices, and economic uncertainties in the United States and the eurozone are still hanging over global financial markets, CBC board members are reportedly leaning toward giving priority to maintaining stability of "two key rates" -- interest rates and currency exchange rates.

Against this backdrop, media reports said, the central bank hasdropped its plan to announce a 0.125 percentage point hike in its keylending rates after Thursday's board meeting.

Meanwhile, the reports said the central bank will likely allowthe New Taiwan dollar to fluctuate between NT$29.5 and NT$30.2 against the U.S. dollar in the months ahead to keep domestic inflation at bay while maintaining the country's export competitiveness.

The following are excerpts from the local media coverage of the central bank's monetary policy and the economic challenges facing the country:

United Evening News:

The central bank had planned to raise its discount rate by 0.125 percentage point to maintain domestic consumer price stability andcontrol inflation in the wake of recent electricity rate hikes.

However, banking sources said, the central bank may postpone its plan for the next quarter as some business tycoons have soundedthe alarm over possible economic hardships ahead and the latest governmentdata has shown a steady decline in exports.

Some market analysts said the central bank's new monetary policy may depend on new measures or decisions to be unveiled by the U.S.Federal Reserve (Fed) early Thursday (Taipei time).

With a slowing global economy and worsening European debt crisis, many economists and analysts are calling for the U.S. Fed to embark on further easing, either by extending the current liquidity operations commonly known as Operation Twist or via the Large Scale Asset Purchase (LSAP) program.

If the Fed indeed announces new monetary easing measures, localbanking sources said, the central bank may follow suit or at least keepits key interest rates at the existing levels.

The CBC's current discount rate stands at 1.875 percent, the rate on accommodation with collateral is 2.25 percent, and the rate on accommodation without collateral is 4.125 percent. (June 20, 2012).

Economic Daily News:

The latest government statistics showed that export orders received by local companies declined 3.04 percent year-on-year in May, toUS$36.47 billion.

Overall exports during the month also fell 6.3 percent from the year-earlierlevel amid sluggish global demand.

Some industry analysts said the weak global economy was only one reason behind the lackluster performance on the export front.

Structural imbalances could present more serious challenges for the industrial sector and the country's policy makers, the analysts said, citing a recent reportby the Council for Economic Planning and Development (CEPD).

The Cabinet-level council said Taiwan's industrial supply chain is overly concentrated in the information communication technology (ICT) field.

If the ICT sector fails to upgrade, Taiwan's global market share couldshrink further, the report said.

Another plight facing local exporters is the fact that components andparts make up the bulk of Taiwan's exports, with the ratio rising from 61 percentof Taiwan's total outbound shipments in 2000 to 74 percent in 2011.

Such a high percentage indicates that most products exported by Taiwan are not finished commodities and need further processing or assembling, the report said.

As a result, local manufacturers are facing the threat of being replaced by competitors and can only earn limited profits.

The practice of receiving orders in Taiwan while making the products abroad and providing manufacturing services for noted brands has also caused animbalance in manpower supply and demand and hindered the employment rate.

The report said polarized confrontation between the two political camps hasalso obstructed overall economic structural reform. (June 20, 2012).

(By Sofia Wu)
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