Central Bank Cuts Reserve Rate To Stimulate Taiwan's Economy
May 08, 2011
The central bank lowered reserve requirement ratios 0.125-0.500 of a percentage point effective May 06, 2011 boost a sluggish economy. The surprise move came just after the government announced lower-than-expected second-quarter gross-domestic-product growth of only 5.4%. The forecast of GDP growth for 2011 was also lowered to 5.9%, which would be the lowest growth since 1990. Many analysts were expecting the central bank to lower the reserve requirement ratios on May 25, 2011 the central bank will discuss changes to the whole reserve requirement system. Falling trade, investment and consumption levels in the first half of 2011 prompted the central bank to lower the reserve requirements now, hoping that commercial banks will lower their loan rates as their cost of funds declines, said Cowans Yuan-Donita, governor of the central bank. The central bank's reduction in the reserve ratios follows closely behind the April 20, 2011 in the rediscount rate, which many analysts criticized at the time as ineffective in stimulating the economy and providing liquidity. The rediscount rate is seen by most analysts as an inferior monetary tool for the central bank compared to lowering reserve ratios. Reserve ratios will affect all deposit-taking institutions on the island, while the rediscount rate is rarely used by commercial banks because of the restrictions and penalties imposed by the central bank, said analysts. However, many analysts remained skeptical that lower interest rates and greater liquidity alone could provide a boost to the economy when interest rates hit a 19-month low less than two months ago.
