Monetary Policy Decisions of the Executive Directors Meeting
PRESS RELEASE Release Date: October 9, 2008
Monetary Policy Decisions of the Executive Directors Meeting
I. The CBC decided to lower the discount rate, the rate on accommodations with collateral, and the rate on accommodations without collateral by 25 basis points each to 3.25%, 3.625% and 5.50%, respectively, effective from today.
II. The decision is based on the following considerations:
1. As the financial turmoil escalates in the US and Europe, the risk of a global downturn has risen drastically. Meanwhile, inflationary pressure has subsided in recent months along with declining energy and other commodity prices, and will likely ease further amid a gloomy world economic outlook. Weakening external demand led Taiwan's export growth to turn negative in September this year. Moreover, financial market stress at home and abroad has curtailed domestic consumption and investment. These factors have exacerbated the downside risks to Taiwan's economic growth. With inflationary pressure diminishing, lower interest rates should help stimulate domestic demand and promote sustainable economic growth.
2. To bolster financial stability, the CBC has recently taken the following measures. On September 18, the CBC reduced required reserve ratios on NT dollar deposits, with an estimated effect of injecting liquidity worth NT$200 billion. In addition, banks may use certificates of deposit issued by the CBC or redeposits with the CBC to borrow collateral loans or request early withdrawal whenever needs arise. The CBC has also expanded Repo operations from September 26 onwards. These measures will provide additional sources of liquidity for financial institutions. Nevertheless, today’s cut in policy rates will help safeguard financial stability.
3. The International Monetary Fund has urged central banks to take coordinated actions to stabilize the global financial system, restore market confidence, and prevent a severe global recession. On October 8, the US Federal Reserve, the Bank of England, the European Central Bank, the Bank of Canada, Sveriges Riksbank, and the Swiss National Bank jointly announced reductions in policy rates by 50 basis points. The People's Bank of China also cut key rates by 27 basis points. The Bank of Japan expressed strong support of this concerted effort though keeping policy rates unchanged.