Monetary Policy Decisions of the Executive Directors Meeting
PRESS RELEASE Release Date: January 7, 2009
Monetary Policy Decisions of the Executive Directors Meeting
I. The following decision was made in today's Executive Directors meeting:
The CBC decided to lower the discount rate, the rate on accommodations with collateral, and the rate on accommodations without collateral by 50 basis points each to 1.50%, 1.875% and 3.75%, respectively, effective from January 8.
II. The decision is based on the following considerations:
1. Inflationary pressure has subsided: With a downturn in the global and domestic economy and a sharp decline in international oil and other commodity prices, inflationary pressure previously facing Taiwan has clearly subsided. The Directorate-General of Budget, Accounting and Statistics of the Cabinet projects a mere 0.37% CPI inflation rate for the year 2009.
2. Exports declined further: Due to weak external demand, Taiwan's exports suffered increasingly steep declines over the past four months. Exports growth slipped to negative 41.9% year on year in December 2008. This situation has, in turn, undermined domestic economic activity.
3. Unemployment increased significantly: The unemployment rate has climbed up in recent months and reached 4.64% in November 2008, a record high since September 2004. Companies are imposing unpaid leaves and downsizing. The labor market could soften further in the future, dampening economic growth.
4. Continuous rate cuts help boost domestic demand: Including today's action, the CBC has reduced the policy rates six times by a total of 212.5 basis points. Continuous rate cuts help reduce the funding costs of individuals and enterprises, stimulate domestic consumption and investment, and are thus expected to boost domestic demand.
III. Given the ample supply of liquidity and lower cost of capital, the Board would urge banks to meet the funding demand of enterprises and not to tighten credit, in order to fulfill their intermediary function.