Central Bank of the Republic of China (Taiwan)
PRESS RELEASE Release Date: September 24, 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.

II. Supported by ongoing fiscal and monetary stimulus, many advanced and Asian economies have bottomed out in the year but are expected to exhibit a mild recovery. Early this month, the International Monetary Fund revised its global growth projections for 2009 and 2010 upwards to –1.3% and 2.9%, respectively.

III. For the second quarter of 2009, Taiwan's economy shrank by 7.54% year on year, which is better than forecasted and also indicates a slowing pace of contraction. Translated into a seasonally adjusted annual rate, Taiwan's economy achieved a 20.69% growth for the second quarter, ranking among the fast-recovering Asian economies.

Taiwan's economic indicators, including export orders, industrial production, retail sales and capacity utilization, have improved recently. The government has also speeded up public infrastructure programs and reconstruction works after Typhoon Morakot. The Directorate-General of Budget, Accounting and Statistics (DGBAS) forecasts the year-on-year economic growth will return to positive territory in the fourth quarter of 2009 and annual growth rate will rise from –4.04% in 2009 to 3.92% in 2010. In the labor market, the number of employed persons has risen for five consecutive months, but the unemployment rate remains relatively high.

IV. Compared with the same period last year, international prices of oil and other raw materials have declined substantially this year. Against this backdrop, Taiwan's average annual rate of CPI was –0.72% for the first eight months of this year, while that of core CPI was 0.23%. The DGBAS expects the CPI to fall slightly by 0.68% for 2009 and turn to rise by 0.87% for 2010, confirming low and stable inflation.

V. The year-on-year growth rate of M2 averaged 7.30% from January to August 2009, slightly above the annual target range. For August, however, the seasonally-adjusted annual rate of M2 stood at 6.37% over December 2008. Bank credit growth was moderate at 1.16% on average for the first eight months of 2009, due to soft demand for funds from enterprises. The rate was still higher than the –8.84% economic growth for the first half of the year, sufficient to meet the needs of economic activity. In the financial markets, with long-term and short-term interest rates remaining at historic lows, lower funding costs for enterprises and individuals could help boost investment and consumption.

VI. Taking into account the above macroeconomic and financial developments, the Board judges that both the current policy rates and money growth remain appropriate, providing support to economic recovery without creating inflationary pressure. In the future, the CBC will continue to adopt appropriate monetary policy in a timely manner to reflect the evolving economic outlook and financial conditions.

VII. The recent appreciation of the NT dollar against the US dollar has mainly been caused by a weakening US dollar. The NT dollar follows a managed float regime; its exchange rate is principally determined by market forces. Nevertheless, when seasonal or irregular factors (such as massive flows of ''hot money'') 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. This is consistent with the notion that managed flexible exchange rates absorb external shocks more efficiently for emerging economies with an open capital account, as pointed out by the United Nations Conference on Trade and Development early September in its Trade and Development Report, 2009.