10.04.2001
CBC cuts rediscount rate to 2.5%

• Development: Taiwan’s Central Bank (CBC) cut its rediscount rate by 25bps to 2.5%, bringing the local rate in line with the US Fed. The CBC also lowered the required reserve ratio to 5.0% from 6.2% and the reserve requirement on foreign currency deposits to 10.0% from 5.0%.

• Analysis: Real interest rates have finally dropped to 2.0% from 4.0% in May and 3.0% in December 2000 when the interest rate cut cycle began.

• Primasia View: The CBC will continue to follow in the footsteps of the Fed and further trim its rediscount rate before year-end. However, we maintain that a recovery in GDP growth will depend more on a turnaround in exports than domestic monetary policy. We forecast a 2.4% contraction in 2001 GDP, before growth recovers to 2.0% next year.