Monetary Policy in Taiwan Left Unchanged

March 22, 2012

As decided at the prior two quarterly policy board reviews by the Central Bank of the Republic of China on September 29 and December 29, monetary officials decided to leave Taiwan’s 10-day lending rediscount rate unchanged at 1.875%.  The benchmark previously had been increased by 12.5 basis points each on June 25, October 1 and December 31 of 2010 and April 1 and July 1 of last year.  Despite some “signs of stabilization in the global economy,” a statement from the Board highlights remaining risks such as Europe’s lackluster growth, lessening dynamism in emerging markets, elevated oil prices, and vulnerable financial markets.  Taiwanese GDP is projected to expanded 3.85% this year, a downward revision from 4.2% predicted in the December 2011 quarterly review.  The economy grew 4.2% last year.  CPI inflation averaged 1.3% in the first two months of this year and is projected to be benign at marginally under 1.5% for 2012 as a whole.  As these statements have done before, a role for occasional intervention is justified.  The new Taiwan dollar is trading at 29.607 per USD currently and has fluctuated in a 7.8%-wide band of the past twelve months between 30.70 and 28.48.

The NT dollar exchange rate is in principle determined by market forces. Nevertheless, when seasonal or irregular factors (such as massive inflows and outflows of short-term capital) lead to excess volatility and disorderly movements in the NT dollar exchange rate with adverse implications for economic and financial stability, the CBC will step in to maintain an orderly market.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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