PRESS RELEASE Release Date: Mar. 20, 2003




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MONETARY POLICY DECISIONS OF THE BOARD MEETING

(Mar. 20, 2003)

As the U.S.-led war against Iraq and tensions on the Korean peninsula sag investor and consumer confidence, the road to world economic recovery appears bumpier than expected. Major forecasting institutes around the world have therefore successively adjusted their projections of global growth rates downwards. Nevertheless, given that inflationary pressure remains subdued, once non-economic disturbances subside, the global economy will bottom out and regain its momentum.

In regard to the Taiwan economy, bolstered by robust intra-regional trade in Asia, Taiwan's exports have performed favorably, which translates into an increase in industrial production, a decrease in inventory levels, as well as higher capacity utilization and firms' profits. Encouraged by these positive developments, consumer confidence has been restored gradually and private investment has picked up. According to the Directorate General of Budget, Accounting and Statistics (DGBAS) under the Executive Yuan (Cabinet), the Taiwan economy will grow 3.38% in the first quarter of 2003 and is expected to grow 3.68% for the year as a whole. Prices remain stable with the CPI likely to rise 0.44% year on year. Labor market conditions improve as well. With the government's active implementation of the project to create public services-related jobs, it is expected that the severity of unemployment will diminish.

To stimulate domestic demand, the CBC has maintained an easy monetary policy since the end of 2000. To date, the discount rate has been cut on 14 occasions. Low interest rates have encouraged consumption and investment and helped foster economic growth. For the first two months of this year, monetary aggregate M2 expanded at an annual rate of 2.72%, and M2 plus bond funds grew 4.24%, both within their respective target zones (1.5% to 5.5% and 3% to 7%). Meanwhile, the NT dollar exchange rate remained stable. By taking into consideration the economic and financial developments both at home and abroad, the Board of the CBC reached the following decisions in its meeting on March 20, 2003:

1. The CBC decided to leave the discount rate, the rate on accommodations with collateral and the rate on accommodations without collateral unchanged at 1.625%, 2.0% and 3.875%, respectively.

2. Since the last adjustment of the remunerative rate on banks' B reserve accounts with the CBC on November 12, 2002, the interbank call-loan rate has dropped from 1.9% to 1.2%, while the average rate on one-year time deposits offered by the five leading domestic banks also declined from 2.11% to 1.54%. To reflect the market trend, the CBC decided to lower the remunerative rate on banks' B reserve accounts from 2.25% to 1.75%, effective from March 21.

3. In regard to the foreign exchange market, the CBC respects market mechanism and the NT dollar exchange rate is in principle determined by market forces. However, in cases when seasonal or irregular factors or irrational expectations result in excessive volatility in the exchange rate, the CBC will step in, as deemed appropriate, to maintain the dynamic stability of the NT dollar exchange rate.

4. The CBC will continue engaging in open market operations and other measures to fine-tune market liquidity with an aim to keep the monetary aggregates of M2 and M2 plus bond funds growing within the target zones. To gain an encompassing perspective, the CBC observes movements in business cycles, prices, employment, interest rates and exchange rates, among other important economic and financial indicators, in its formulation of monetary policy.

5. The CBC keeps a close watch over the international political and economic developments and will continuously adjust its policy in accordance with the emerging economic and financial developments to foster a financial environment conducive to economic recovery.