Central Bank of China

PRESS RELEASE Release Date: Dec. 26, 2002




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MONETARY POLICY DECISIONS OF THE BOARD

(Dec. 26, 2002)

The easy monetary stance adopted by the CBC over the last two years has provided significant support for economic activities. For the coming year, the ongoing moderate economic recovery is expected to persist, and inflationary pressures will remain low. In line with the long-term goal of price stability and economic growth, the Board of the CBC reached the following decisions in its meeting on December 26, 2002:

1.Monetary aggregates serve as the intermediate target of the CBC's monetary policy. To keep abreast of the diversification and innovation of financial products, the CBC has observed various monetary aggregates simultaneously. For next year, the CBC set target zones for both M2 and M2 plus bond funds to facilitate a more comprehensive reference. By taking into account next year's economic growth and price conditions, the differential between domestic and foreign capital gains, and the impact of financial asset diversification on monetary demand, and by incorporating opinions of scholars and experts, the CBC set the target zones for M2 growth at 1.5% to 5.5%, and for M2 plus bond funds growth at 3.0% to 7.0%.

2.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. To allow more flexibility for the CBC's open market operations, the overnight call-loan rate will be maintained at around, instead of above, the discount rate.

3.With the new year approaching, to meet the seasonal demand for funds, the CBC has arranged appropriate maturity dates of the certificates of deposit (CDs) it issued for banks' smooth fund allocation. The CBC has also prepared to fully support financial institutions faced with temporary liquidity shortage by means of open market operations and discount window refinancing.

4.Based on the mandate endowed upon it by the Central Bank Act, the CBC is devoted to maintaining stability of financial markets. In cases when seasonal or irregular factors, or irrational expectations result in excessive volatility in the exchange rate, the CBC will step in the foreign exchange market, as deemed appropriate, to ensure that the NT dollar exchange rate reflect our economic fundamentals.

5.The small and medium-sized enterprises (SMEs) have contributed significantly to our economic developments. To help SMEs obtain financing, the government decided to earmark an additional NT$20 billion to the SME Credit Guarantee Fund within the course of the next two years. The diagnosis and supervision mechanism of the SME One-Stop Solution Center of the Ministry of Economic Affairs will also be further strengthened. With the above efforts, the CBC hopes to encourage banks to actively provide credit to SMEs, thereby fulfilling the intended policy results.

6.Being an integral part of the global economy, Taiwan is inevitably affected by international political and economic developments. The CBC continues keeping a close watch over economic and financial conditions both at home and abroad and adopting appropriate measures in a timely manner.