WRAP: Taiwan Rate Cut Opens Door For Faster NT$ Fall
By Kirby Chien
Of DOW JONES NEWSWIRES
TAIPEI (Dow Jones)--Taiwan's central bank shifted gears by cutting key interest rates for the first time in almost two years, a move economists said would boost a flagging economy but also opens the door for a faster depreciation of the new Taiwan dollar.
"Lower interest rates are good (for the economy)...but will put more pressure on the (Taiwan) dollar," said Daniel Chen, the chief economist at the Industrial Bank of Taiwan, adding, however, the pace of depreciation still depends on the level of central bank intervention.
The bank announced at the end of its quarterly board meeting identical cuts of 12.5 basis points in the discount rate and accommodation against secured loans rates, which fell to 4.625% and 5.0%, respectively.
The cuts are made because of a slowing economy and a high jobless rate, said Perng Fai-nan, the central bank governor, adding the bank's monetary policy remained loose.
Last month, Taiwan reduced its forecast for 2001 economic growth to 6.03% from 6.48% while November's unemployment rate jumped to 3.23% a near 15-year high.
The cuts will become effective Friday and reverse the direction of two successive small rate hikes earlier this year designed as "preemptory strikes" against nascent inflation.
Economists say inflation is less of a threat next year than the rapid erosion in economic growth, that JP Morgan says will fall to 3.0% in 2001, less than half the government's 6.03% estimate. Taiwan is forecasting growth to hit 6.47% in 2000.
The central bank forecasts core consumer prices to rise 1.6% in 2001, while inflation next year is "controllable" and that the bank is "comfortable" with it, said Perng.
However, economists say the costly defense of the local dollar has sliced foreign exchange reserves to US$108.3 billion, an 11-month low, and is preventing a "competitive depreciation" that could help support faltering exports. |
