Central Bank of China

PRESS RELEASE Release Date: June 27, 2002



MONETARY POLICY DECISIONS OF THE BOARD MEETING

(June 27, 2002)

The recent fluctuations in international financial markets cast a shadow over the widely expected global economic recovery. While the Taiwan economy has been on the track to steady recovery, domestic demand remains weak. In this context, as no signs of inflation have been observed and in order to reflect the trend of market interest rates and to maintain financial market stability, the Central Bank of China (CBC) in its Board meeting held on June 27 reached the following decisions:

1.The CBC decided to lower the discount rate, the rate on accommodations with collateral and the rate on accommodations without collateral each by 25 basis points from 2.125%, 2.5% and 4.375% to 1.875%, 2.25% and 4.125%, respectively, effective from June 28.

2.The CBC will continue monitoring economic and financial developments both at home and abroad and adopting timely measures, such as open market operations, in order to fine-tune fund conditions to support economic recovery. In accordance, the CBC again encourages banks to fully fulfill the role of financial intermediary by extending credit to enterprises to help foster sound economic developments.

3.In view of the excess supply of the US dollar in the domestic foreign exchange market and the lower short-term interest rates on US dollar deposits as compared to NT dollar deposits posted by local banks, the CBC decided to cut the required reserve ratio on foreign currency deposits (imposed on December 8, 2000) from 2.5% to 0.125%, effective from June 28.

4.Affected by a weakening US dollar, the NT dollar has been appreciating against the US dollar over the recent months. 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.

5.The CBC emphasizes exchange rate risk management for importers and exporters on a regular basis. For example, exporters may sell foreign exchange forwards when receiving orders and importers may buy foreign exchange forwards when placing orders to hedge exchange rate risk. The CBC warns against those who normally do not engage in foreign exchange forward transactions to suddenly buy or sell foreign exchange forwards in huge amounts. Such irregular transactions not only disrupt the foreign exchange market but the sellers involved will not make any profits, nor will the buyers get any bargains.