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

By Tali David

Minneapolis, June 21 - 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 holding the rate steady reflects that several international organizations have revised down their forecasts for the global economic outlook. The adjustment largely reflected the moderate U.S. economic expansion, a slowing Chinese growth, unstable international financial markets and a stagnant European economy.

The board also decided to maintain the rate on accommodations with collateral and the rate on accommodations without collateral at 2¼% and 4 1/8%, respectively.

The bank reported that domestic inflation abated partly, reflecting a significant decline in international commodity prices and a slowdown in the domestic economy. For the entire year, the CPI is projected to increase by 1.84%.

The bank said the interbank overnight call loan rate went up from March 26's 0.399% to 0.511% on June 20. For the first four months of this year, the average annual growth rate of bank loans and investments was 5.3%, and the M2 annual growth rate was 4.98%.

Domestically, industrial production continued to decline, weighing on private investment. The economy grew modestly by 0.39% year-on-year in the first quarter of 2012. The Directorate-General of Budget, Accounting and Statistics revised its projection for Taiwan's 2012 economic growth to 3.03% in its end-of-May forecast.

The board also decided to adopt targeted prudential measures with respect to high-value housing loans, effective June 22.

Housing loans for properties located in Taipei City or New Taipei City with the appraisal or sale value of NT$80 million or above, or those located elsewhere in Taiwan with the appraisal or sale value of NT$50 million or above, shall be subject to a loan-to-value ratio capped at 60% with no grace period.

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