Taiwan keeps discount rate at 1 7/8% with continued economic growth

By Tali David

Minneapolis, March 28 - The board of the Central Bank of the Republic of China (Taiwan) unanimously voted to keep the discount rate unchanged at 1 7/8% at its policy meeting on Thursday.

The board said that in the year to date, several major economies have continued with monetary easing, while the global economy recovers at a moderate pace.

On the other hand, re-emerging financial strains in Europe and the ongoing U.S. fiscal uncertainty present risks to the steady growth of the world economy. Global inflationary pressures were subdued as soft demand restrained international oil and other commodity price hikes amid a moderate recovery, the board commented.

In Taiwan, the economy has gradually picked up since the fourth quarter last year with better-than-expected performance in exports and private consumption, the bank said.

The Directorate-General of Budget, Accounting, and Statistics revised up its first-quarter GDP forecast to 3.26% in February. Bolstered by the world's moderate economic expansion, exports and private investment will likely drive the domestic economy to grow by 3.92% in the second quarter and 3.59% for the entire year.

The bank reported that for the first two months of the year, the CPI annual growth rate averaged 2.05%, but the core CPI (excluding vegetables, fruits, and energy) grew only 1.25%.

Interbank rates remained broadly stable at around 0.387%. The annual growth rates for the first two months of the year were 5.65% for bank loans and investments and 3.26% for M2, both sufficient to support economic growth.

The board also implemented targeted prudential measures against land collateralized loans and high-value housing loans as well as mortgage lending in "specific areas."

These efforts were meant to strengthen banks' risk control and have successfully brought down the average loan-to-value ratio in the "specific areas" to 57% and led the average mortgage rate upwards to above 2%, the board said.

The bank will keep close watch on incoming data on real estate lending and urge financial institutions to ensure sound operation, with a view to preserving financial stability.

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