Monetary Policy Decisions of the Board Meeting
Central Bank of China
PRESS RELEASE Release Date: March 26, 2004
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Monetary Policy Decisions of the Board Meeting
Led by an accelerating US economy, the global economy has begun to stage a
stable recovery with inflationary expectations remaining subdued. Major central
banks have continued to keep official rates unchanged. The Taiwan economy has
regained its momentum. The economy is picking up as external trade and
industrial production continue to expand. The capacity utilization rate and
corporate earnings have been increasing. Private consumption and investment are
on the rise again, which will further boost the economy. The Directorate General
of Budget, Accounting and Statistics (DGBAS) of the Executive Yuan projects the
economy to grow by 4.74% and CPI by 0.48% for the year 2004. The labor market
has seen signs of improvement due to the economic recovery and the Public
Service Employment Program implemented by the government.
On the financial front, funding conditions in the banking system remained easy
and short-term market interest rates remained low while long-term rates remained
stable. Growth rates of monetary aggregates have been rising due to the economic
recovery, rebounding bank credit, foreign capital inflows, and trade surpluses.
In addition, the NT dollar exchange rate has remained dynamically stable.
Having carefully reviewed all available information related to recent financial
and economic development, the Board of the CBC reached the following decisions
in the meeting on March 26, 2004:
1.The easy monetary policy adopted by the Board over the past three years has
added considerable support to domestic economic activity. Although the economy
is briskly expanding and asset markets are strengthened, further improvement in
the labor market is still needed to be accelerated. Therefore, with consumer
prices remaining muted, the Board decided to keep the discount rate, the rate on
accommodations with collateral, and the rate on accommodations without
collateral unchanged at their current levels of 1.375%, 1.75%, and 3.625%,
respectively.
2.Since the remunerative rate on banks' B reserve accounts with the CBC was
adjusted down to 1.75% on March 21, 2003, the weighted average deposit rate in
banking system has declined from 1.70% to 1.27%. To narrow the rate spread, the
CBC decided to lower the remunerative rate on banks' B reserve accounts by 25
basis points from 1.75% to 1.50%, effective from March 29.
3.As Taiwan is a small and highly open economy, with the ratio of external trade
in goods and services to GDP exceeding 100%, exchange rate movements impose
significant influences on external trade and economic growth. The NT dollar
exchange rate is in principle determined by market forces. However, in cases
when seasonal or irregular factors 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 keep close eye on the economy and will continuously adjust its
monetary policy in accordance with developments in prices and movements in the
labor and financial markets, to foster a financial environment conducive to
economic recovery.