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Monetary Policy Decisions of the Board Meeting

Central Bank of the Republic of China (Taiwan)
PRESS RELEASE Release Date: December 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 3.375%, 3.75% and 5.625%, respectively, effective on December 21, 2007.
2. The CBC uses the monetary aggregate M2 as the intermediate target of monetary policy. Having assessed the impact of economic growth, inflation and interest rates on the demand for money, the CBC decided to set the target zone for M2 growth for the year 2008 at 3% to 7%.
3. The NT dollar exchange rate is determined by market forces. However, when seasonal or irregular factors 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 inflationary pressure
In October and November this year, both the CPI and core CPI increased significantly more than in previous months. As international raw material prices surge, rising import prices have been feeding into general prices. The Directorate-General of Budget, Accounting and Statistics (DGBAS) of the Executive Yuan expects CPI inflation for next year to reach 1.84%, higher than the 1.65% forecast for this year.
2. Economic growth remains solid
A slowdown in global growth could hamper Taiwan's export expansion next year. Despite this factor, economic growth is expected to remain solid, led by steady increases in private consumption and investment. The DGBAS projects GDP to grow by 4.53% next year.
3. The job market continues to improve
For the first ten months of this year, the average number of employed workers increased by 1.88% year on year and the unemployment rate dropped to 3.92%, the lowest level since 2001.
4. Real interest rates still below the neutral level
The persistently high international energy, raw material and commodity prices weigh on inflationary pressure. To maintain both price stability and economic growth, the Board decided to fine-tune the policy rates in today's meeting. This action will also help align market interest rates closer to the neutral level, guide efficient fund allocation, and safeguard long-term financial stability.
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