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Economic Daily News: The right first step

Economic Daily News: The right first step

The central bank decided Thursday to leave its key interest rates unchanged amid the latest round of global interest rate cuts led by the European Union. The central bank said its decision was based mainly on Taiwan's economic growth, which is projected at 4.19 percent for 2012. Compared with other countries, especially the EU nations, such a growth rate is adequate though not good enough, it said. Another reason was imported inflationary pressure. Import prices in U.S. dollar terms rose 9.75 percent year-on-year in November, much higher than the 1.01 percent increase in the consumer price index. Under these circumstances, lowering interest rates may increase the risk of inflation, the bank said. Furthermore, the average deposit interest rate of Taiwan's five largest banks stood at just 1.36 percent in the first 11 months of this year, during which the inflation rate was 1.37 percent. This means the real interest rate still remained in negative territory after the inflation rate was taken into consideration. In fact, the central bank has raised its key interest rates five times since June 2010 in an effort to guide interest rates back to normal levels. It would be counterproductive if the central bank were to cut interest rates now. The recent round of interest rate cuts in Europe was triggered by the region's debt crisis, which seriously eroded confidence in its capital market and led to a liquidity squeeze. Taiwan, however, has not experienced such a problem. It is commendable that the central bank did not go with the tide. (Editorial abstract -- Dec. 30, 2011) (By Y.F. Low)


Updated : 2020-11-30 01:35 GMT+08:00