CBC raises M2 money supply growth target range to 2.5%-6.5% for 2004

Taipei, Dec. 31, 2003 (CENS)--Seeing an upbeat economic trend, the Central Bank of China (CBC) in Taiwan has decided to expand the M2 money supply growth target by one percentage point to the range of 2.5% to 6.5% for 2004, with the middle target raised to 4.5% from 3.5%.

The CBC made the decision at its year-end board meeting. It also decided to maintain loose monetary policy to keep warm economic climate on the island. Compared to 2003, Taiwan's economy in 2004 is forecast to gain more strength along with the global economic rebound. However, CBC said that Taiwan would still see relatively low economic growth rate and low inflation in the coming year, predicting the island economic growth rate at 4.19% and expecting the annual growth rate of consumer prices to edge up 0.02% next year.

CBC Governor Perng Fai-nan said that over the past two years, the central bank has lowered its key rates for 15 times to record lows, with the rediscount rate now at 1.375%, the rate for secured accommodations at 1.75% and the rate for short-term accommodations at 3.625%. Perng emphasized that the core of CBC's monetary policy is to stabilize domestic sales prices, which have so far been quite steady.

In the first 11 months of this year, Taiwan's average outstanding M2 money supply, the broadest measure of money flows, came to NT$20.65 trillion (US$607.35 billion at US$1 = NT$34). With the center growth target of the M2 money supply raised to 4.5%, the aggregate money supply is expected to see an average increase of NT$930 billion (US$27.35 billion) in 2004.

Market observers indicated that CBC raised the target range for M2 money supply growth mainly to reflect the growing demand for funds by private sectors, fueled by the significant recovery of the local economy.

They further pointed out that there still exist some uncertain factors at home and abroad that may influence Taiwan's economy next year. Accordingly, the CBC should closely watch the world financial market trends, particularly those in the United States and Europe, before conducting any adjustment of its monetary policy. The observers forecast that local interest rates won't rise until the second half of next year at the earliest.