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Monetary Policy Decision of The Board Meeting (June 26, 2003)

Central Bank of China
PRESS RELEASE Release Date: June 26, 2003




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MONETARY POLICY DECISIONS OF THE BOARD MEETING

(June 26, 2003)

The slower-than-expected economic recovery of major industrial countries in the wake of the U.S.-Iraqi war, compounded by the outbreak of Severe Acute Respiratory Syndrome (SARS) in East Asia, has led major forecasting institutes worldwide to scale back their projections of the global economic growth rate for 2003. Meanwhile, inflationary pressure remains subdued. In this context, major countries have engaged in interest rate cuts recently to stimulate their economies.

With regard to the Taiwan economy, the negative impact of SARS on export orders and economic activities sagged consumer confidence and put a brake on private investment. The expansion of domestic demand was thus restrained in the second quarter of 2003. Hence, the Directorate General of Budget, Accounting and Statistics under the Executive Yuan (Cabinet) revised downwards the economic growth rate for the second quarter of 2003 to 1.20% and the full year growth rate from 3.68% to 2.89%. The CPI inflation rate forecast was also downward revised from 0.44% to -0.06% year on year. In addition, due to the SARS impact, the unemployment rate was slightly up to 4.98% in May.

As the funding condition in the banking system remains easy, interest rates trend downwards with the overnight interbank call-loan rate declining to 1.161%. For the first five months of this year, monetary aggregate M2 expanded at an annual rate of 2.46%, and M2 plus bond funds grew 3.96%, both within their respective target zones (1.5% to 5.5% and 3% to 7%). Meanwhile, the NT dollar exchange rate remained largely stable.

The Board of the CBC took into consideration the economic and financial developments both at home and abroad. The uncertainty of global economic recovery may unfavorably impact Taiwan's external trade, and domestic consumption and investment may also need to be further boosted in the post-SARS era. In order to prevent any possibility of deflation, to reflect the interest rate trend both in international and local markets, and to attain the long term policy objectives of financial stability and sustainable economic growth, the Board reached the following decisions in its meeting on June 26, 2003:

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 1.625%, 2.0% and 3.875% to 1.375%, 1.75% and 3.625%, respectively, effective from June 27.

2. In regard to the foreign exchange market, in cases when seasonal or irregular factors or irrational expectations result in market disorder, the CBC will step in, as deemed appropriate, to maintain the dynamic stability of the NT dollar exchange rate.

3. The CBC will continue to conduct open market operations and other measures to provide sufficient liquidity. Furthermore, the CBC will keep a close watch over factors that may influence economic activities and will adopt appropriate policy in a timely manner in accordance with economic and financial developments.
 

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