Key rates cut by 0.25 of a point

The China Post news staff

TAIPEI, Taiwan — In tandem with the move of the world’s major central banks, the Central Bank of the Republic of China (CBC) yesterday announced an emergency measure to reduce the nation’s policy interest rates by 0.25 of a percentage point, effective immediately.

Following the cut, the discount rate, the rate on accommodations with collateral and the rate on accommodations without collateral will drop to 3.25%, 3.625%, and 5.5% per annum, respectively.

This is the second interest-rate cut in two weeks, following a reduction of 0.125 of a percentage point on the rates Sept. 26.

It follows the simultaneous interest-rate cut of 0.5 of a percentage point by the world’s major central banks on Wednesday, including the U.S. Federal Reserve, the Bank of England, the Central Bank of Canada, the Central Bank of Sweden, and the Central Bank of Switzerland. The People’s Bank of China also reduced its policy interest rates by 0.27 of a percentage point. The concerted action came immediately after the International Monetary Fund (IMF) on Wednesday called for the world’s major central banks to take actions to stabilize global financial markets and prevent a global economic recession.

CBC Governor Perng Fai-nan attributed the decision for the latest interest-rate cut to the spreading financial crisis in the U.S. and Europe, which may affect domestic consumption and investment, boosting the risk of lower economic growth.

Perng referred to the weakening foreign demand, which led to a decline in Taiwan’s export performance in September. On the other hand, the inflationary pressure has been alleviated, following the price drops of energy and commodities in recent months, Perng added. The latest interest cut will reinforce the effect of the CBC’s recent measures for bolstering market liquidity in helping assure financial stability. These measures include cutting required reserve rates for deposits, releasing NT$200 billion in funds, allowing banks to borrow funds from the CBC using NCD (negotiable certificates of deposits) as collateral or to redeem NCDs in advance, and providing access to Repo facilities to all securities firms and insurance firms.

In related news, the International Monetary Fund (IMF) on Wednesday warned that the world economy is experiencing a major downturn in the face of “the most dangerous financial shock in mature markets since the 1930s.”

The IMF’s latest World Economic Outlook (WEO) projects global growth to slow substantially in the latter part of 2008, revising the projected growth rate downward to 3.9 percent for the year.

The WEO has forecast that growth in advanced countries will be close to zero until at least mid-2009, while growth in emerging and developing countries will slow to substantially lower rates than in the recent past.

In Taiwan, growth is likely to reach 3.8 percent in 2008 and drop to 2.5 percent in 2009, according to the WEO.