10.03.2001
More interest rate cuts in store

• Development: The US Fed reduced its benchmark interest rate by 50 bps to 2.5% yesterday. We expect Taiwan’s Central Bank (CBC) to follow suit and reduce its rediscount rate to 2.25% from the current 2.75%.

• Analysis: Another rate reduction by the CBC will bring real interest rates close to the 2.0% mark, lower than the 3.0% in Dec. 2000 and 4.0% in May this year.

• Primasia View: Due to structural problems in the island’s financial sector (high NPLs), interest rate cuts have neither boosted confidence in the economy nor jump started recovery in consumption. Recovery in Taiwan’s GDP will continue to be held back by depressed global demand. We forecast GDP to contract 2.5% this year and grow only 2.0% in 2002.