11.07.2001
Central Bank to shadow Fed

• With unemployment at five-year highs and consumer confidence at seven-year lows, the US Fed trimmed its fund rate by 50bps to 2.0% at a meeting on Nov. 6. We expect Taiwan’s Central Bank (CBC) to follow suit. CBC’s rediscount rate now stands at 2.5%. In the absence of any positive economic news in Taiwan, and no visible immediate recovery in global demand, we expect the CBC to trim its rediscount rate to 2.0% this week. Although the CBC is known for its more conservative measures (25bps cuts), we believe a cut of 50bps is called for. A fall in the domestic rate to 2.0% will negate any interest rate differential with the US, preventing capital outflow.