TAIPEI (Taiwan News) – Taiwan will not cut interest rates to a zero level, Central Bank Governor Perng Fai-nan told lawmakers Monday, predicting the economy will bottom out around the middle of next year.
Taiwan’s Central Bank has been cutting interest rates in line with its overseas counterparts in an effort to ward off the worst of the global financial crisis.
“Cutting interest rates is just one of many methods to boost domestic demand, but its effect can only be increased in tandem with financial policies,” Perng said.
The central banker compared interest rate cuts to Chinese medicine, saying it’s important to know what the ailment is and what kind of cure the patient needs. The interest rate reflects future consumption prices, and cuts have their limits, Perng said.
He told lawmakers that no country in the world had zero interest rates, and it was impossible for Taiwan to cut the rates that far.
“When the whole world economy slumps, Taiwan cannot be the only one that’s different. Taiwan has to expand domestic demand, and reduce negative outside influences as much as possible,” he said.
Asked whether the economy would revive during next year’s second quarter, Perng said he expected a rebound around the middle of the year.
President Ma Ying-jeou promised unemployment below 3 percent in the run-up to presidential elections last March, but under pressure from the global financial crisis, the jobless rate climbed to 4.64 percent last November. More than 500,000 Taiwanese are looking for a job, according to government statistics.
Apart from laying off employees, companies have also started forcing their workers to take unpaid leave, a practice which has come under fire from labor groups.
After public pressure, the government also said employers could not introduce unpaid leave without the agreement of the employers.
In addition to the unemployment rate, other government statistics have also shown unfavorable results, with exports and export orders registering major declines.