Bank cuts stimulant for growth

Business Asia, August 17, 1998

Taipei -- A decision by the Taiwan central bank to cut commercial banks' reserve requirements could help stimulate the island's rapidly receding economic growth, analysts say.

"The central bank's move can help spur the sagging economy, which has been in a doldrum amid the Asian financial crisis," said Mr Wu Chungshu, senior researcher of Academia Sinica, Taiwan's top academic institution.

He said with export growth expecting to further drop in the third quarter, there was a need to cut the reserve ratios to make funds more easily available for local firms.

The central bank recently ordered a cut in commercial banks' reserve requirements in a bid to bolster money market liquidity.

Under the cut, the ratio for passbook deposits would be decreased by 0.5 percentage points while that for time deposits would reduce by 0.2 percentage points, the bank said.

The central bank said it would also release T$10 billion (US$290 million) in postal saving funds.

The rate reduction -- the first since October 16, 1997 -- and the release of the postal fund would flush Taiwan's money market with an additional T$46.7 billion in fresh liquidity, the bank said.

--Reuters