Monetary Policy Decisions of the Board Meeting
PRESS RELEASE Release Date: September 20, 2007
Monetary Policy Decisions of the Board Meeting
I. The Board reached the following decisions in today's meeting:
1. The Board decided to raise the discount rate, the rate on accommodations with collateral, and the rate on accommodations without collateral by 12.5 basis points each to 3.25%, 3.625% and 5.5%, respectively, effective on September 21, 2007.
2. The NT dollar exchange rate is determined by market forces. However, when seasonal or irregular factors, such as "hot money" or irrational expectations, disrupt the market, the CBC will step in to maintain an orderly foreign exchange market.
II. The decisions are based on the following considerations:
1. Rising CPI inflation
For the first eight months of 2007, the CPI and core CPI increased by 0.62% and 0.87% year on year, respectively, while the WPI rose significantly by 6.25%. Rising prices of raw material imports will gradually feed into general prices. Based on this factor and on top of a low-base effect, the Directorate-General of Budget, Accounting and Statistics (DGBAS) of the Executive Yuan forecast CPI inflation to increase to 2.34% in the second half of this year. For this year as a whole and for next year, the CPI is projected to rise by 1.48% and 1.46%, respectively.
2. Economic growth remains solid
Taiwan's exports will continue to be bolstered by the steady expansion of the global economy, despite a likely slowdown in the US. As private consumption gathers momentum and private investment continues to grow, the DGBAS has forecast GDP growth to reach 4.53% in the second half of this year. Economic growth is expected to remain solid, reaching 4.58% and 4.51%, respectively, for this year and next year.
3. The job market continues to improve
For the first seven months of this year, the average number of employed workers increased by 2.02% year on year and the unemployment rate dropped to 3.88%, the lowest level since 2001.
4. Monetary growth stays at appropriate levels
Reserve money increased by 5.69% on average in the first eight months of 2007. The broad monetary aggregate M2 grew by 5.16% in the first seven months of this year and the annual growth is expected to stay within the CBC's 3.5% to 7.5% target zone.
5. Real interest rates still below the neutral level
Taiwan's economic growth remains solid and the persistently high international oil and raw material prices weigh on inflationary pressure. Meanwhile, real interest rates remain at low levels. To guide efficient fund allocation, maintain stable prices and safeguard long-term financial stability, it is necessary to raise policy rates to more appropriate levels. After taking into account of external uncertainties, the Board decided to fine-tune the policy rates in today's meeting.