Monetary Policy Decisions of the Board Meeting
PRESS RELEASE Release Date: March 26, 2009
Monetary Policy Decisions of the Board Meeting
I. The Board decided to leave the discount rate, the rate on accommodations with collateral, and the rate on accommodations without collateral unchanged at 1.25%, 1.625% and 3.50%, respectively, effective from March 27.
II. The global economy has seen a widespread recession since the beginning of this year, and the outlook remains uncertain. According to the US Federal Reserve, if expansionary fiscal policy and actions to restore financial system stability are effective, the current recession will likely end this year. On the domestic front, exports continued to contract year on year in the first two months of 2009. More recently, however, export orders have recovered in some industries due largely to a surge of rush orders. Shopping vouchers given out by the government, an increase in tourists visiting Taiwan and a rebound in local stock markets also help boost domestic consumption. Meanwhile, inflationary pressure is muted as import prices of oil and other commodities decline.
The global financial crisis set off by the US housing bust has severely undermined financial systems in the US and Europe. In comparison, Taiwan's financial system remains stable, financial intermediation functions normally, and problems such as liquidity shortage and undercapitalization are absent. For the first two months of 2009, average excess reserves in the banking system exceeded NT$120 billion and the average annual growth rate of M2 was 6.68%. Financial conditions stay accommodative enough to meet the demand of economic activities.
III. The CBC has cut the policy rates seven times by a total of 237.5 basis points since September 2008. With an efficient interest rate channel of monetary policy transmission, both long-term and short-term market interest rates have fallen, significantly reducing the burden of mortgage borrowers and enterprises. Currently, money market rates and the deposit and lending rates of banks are at historic lows and lower than the levels in major countries.
The government has actively adopted an expansionary fiscal policy, while the CBC has consistently pursued an easy monetary policy. These coordinated policy efforts are helping to stimulate the economy. Therefore, the Board judged that the current stance of monetary policy was appropriate. In the future, the CBC will continue to conduct policy based on the latest information. With easy funding conditions and a strengthened Small and Medium-sized Enterprise Credit Guarantee Fund sharing banks' credit risk, the CBC would urge banks to fulfill their intermediary function by meeting the funding needs of well-managed enterprises.
IV. The exchange rate affects exporters and importers differently, making it difficult to satisfy both sides. The exchange rate is determined by market forces. However, when seasonal or irrational factors cause the NT dollar exchange rate to become more volatile than can be explained by economic fundamentals, the CBC will step in to maintain an orderly market. Relative to the currencies of major countries, the NT dollar remains stable against the US dollar.
V. The CBC has sought to utilize foreign exchange reserves effectively to assist in economic development. Since 1989, it has used the reserves as seed funds to participate in the Taipei Foreign Currency Call-loan Market, and to conduct swap transactions, place deposits with and extend accommodations to banks. These moves have helped banks and their overseas branches meet the foreign currency demand from domestic and overseas Taiwanese enterprises. By the end of February 2009, foreign exchange reserves utilized through the above channels had added up to US$27,825 million. This amount includes those used to support the Export-Import Bank in providing import or export financing or refinancing.