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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.
 

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