RTTNews - As expected, Taiwan's central bank left its key interest rate untouched at a record low for the second rate-setting session and said the current monetary stance is appropriate.
The Central Bank of the Republic of China (Taiwan) left the discount rate at 1.25%, the rate on accommodations with collateral at 1.625% and the rate on accommodations without collateral at 3.50%, respectively. The previous change in interest rates was in February when the central bank cut them by 25 basis points.
There was a cumulative reduction of 2.375 percentage points in seven sessions from September to February to shore up the economy which contracted 10.24% year-on-year in the first quarter after declining 8.61% in the fourth quarter of 2008.
The central bank said in a statement that the pace of decline in exports has slowed due to an increase in orders. Overseas sales have slumped 31.4% year-on-year in May following a fall of 34.3% in April. In May, export orders were down 20.14% annually, slightly slower than a 20.90% fall recorded in April.
Central Bank Governor Perng Fai-nan hinted that the bank may take a stance to tighten the monetary policy only after the economy recovers to its pre-crisis level.
Moreover, the central bank said consumer confidence is strengthening and private consumption is expected to pick up modestly. The bank expects the government's pubic infrastructure investment expansion program to produce positive effects, which will pave the way for an economic recovery. At the same time, the bank warned that the conservative view on the outlook among businesses may weigh on private investment and employment.
Taiwan's statistical office expects the pace of economic contraction to ease in the second and third quarters of the year and the economy would return to positive growth in the fourth quarter of this year.
Inflation has been in negative territory since February. In first five months of this year, the consumer price index dropped 0.11%. According to the central bank, domestic inflation is expected to stay in check, as international raw material prices still continued to record considerable declines compared to the level seen in the previous year.
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