Taiwan Cuts Interest Rate to 3% After Fed Reduction

By Chinmei Sung and Janet Ong

Oct. 30 (Bloomberg) -- Taiwan's central bank cut interest rates for the third time in less than two months, after counterparts in the U.S. lowered borrowing costs to stem the damage from the global financial crisis.

The Central Bank of the Republic of China (Taiwan) reduced the discount rate on 10-day loans to banks to 3 percent from 3.25 percent, Governor Perng Fai-nan said in a press conference in Taipei today.

The decision follows reductions by the U.S. Federal Reserve and China yesterday. Central bankers worldwide are trying to revive credit and stop a self-reinforcing downturn in consumer spending and bank lending from triggering a global recession. The Fed cut rates to 1 percent from 1.5 percent to try and thaw frozen credit markets and avert a prolonged recession.

``The rate cut will help to boost the economy and bolster economic growth,'' Perng said. ``The risk of an economic slowdown is rising as domestic consumption has slowed.''

Premier Liu Chao-Shiuan on Oct. 22 said the government plans to cut its 2009 growth forecast from 5.08 percent as overseas sales weaken. Taiwan's economy grew at the slowest pace in more than a year in the second quarter.

``As long as central banks around the world are cutting rates, Taiwan will do the same to help fight a global crisis,'' said Cheng Cheng-mount, an economist at Citigroup Inc. in Taipei. ``The impact of a global downturn is felt more now in Taiwan.''

Slowing inflation gives the central bank more room to cut rates further. Inflation eased for a second month in September as food and fuel prices fell.

Export orders grew at the weakest pace in six years in September as demand from China fell and sales to the U.S. slowed. Overseas shipments are equivalent to about half of Taiwan's gross domestic product.

To contact the reporter on this story: Janet Ong in Taipei at jong3@bloomberg.net