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Taiwan Holds Rate for Longest Period on Record as Growth Slows

Taiwan kept interest rates unchanged for an eighth meeting after the government cut its growth forecast for this year as a slowdown in China hurts the outlook.

The central bank held the discount rate on 10-day loans to banks at 1.875 percent, it said in a statement in Taipei today, as predicted by all 19 economists in a Bloomberg survey. The monetary authority has refrained from adjusting borrowing costs since June 2011, the longest period of inaction, its data showed.

A cash squeeze in China, the island’s biggest trading partner, has led to market selloffs in Asia and threatens to slow the region’s expansion. Taiwan’s statistics bureau last month cut the gross domestic product forecast for this year to 2.4 percent from 3.59 percent, and President Ma Ying-jeou has unveiled measures to boost economic growth.

Interest rates are already at ultra-low levels, cutting rates would have a limited effect on the economy,” Ma Tieying, a Singapore-based economist at DBS Group Holdings Ltd., said before the decision. The central bank “will need to balance the goals of bolstering economic growth and safeguarding financial stability. Staying put will be the best policy option.”

Global funds have sold almost $4 billion of Taiwanese stocks this month. The Taiex index closed 1.3 percent higher today before the announcement. The Taiwan dollar has slipped about 3.5 percent this year against its U.S. counterpart.

President Ma, whose disapproval rating is at its highest since he took office in May 2008, has sought closer trade and investment ties with China to bolster the island’s economy. He said last month he’ll let the island’s insurers invest in infrastructure projects and create a NT$1 billion ($33 million) fund to channel money to companies.

Biggest Squeeze

China’s biggest squeeze on credit in at least a decade limits mainland companies’ financing abilities, fueling concern a further slowdown will drag Taiwan’s economic growth.

Exports (TWTREXPY), which make up about 60 percent of the island’s gross domestic product, slipped in two of five months this year. HTC Corp., the Taiwanese smartphone maker which posted a record-low profit last quarter, said its revenue fell 3.4 percent in May from a year earlier.

The economy grew 1.67 percent in the three months through March from a year earlier, after expanding 3.97 percent in the fourth quarter. Consumer prices rose 0.74 percent in May from a year earlier, the slowest pace since February 2012.

Central bank Governor Perng Fai-nan, who was re-appointed to a fourth term in February, said in a statement today consumer-price growth is “modest,” and measures to cool property prices have seen results. The economy will be better in the third quarter from the preceding period, it said.

Perng has imposed selective credit controls on luxury housing since June last year, with mortgages capped at 60 percent of the value of the property in Taipei and New Taipei city for values of over NT$80 million, and NT$50 million in other parts of Taiwan.

To contact the reporters on this story: Andrea Wong in Taipei at awong268@bloomberg.net; Chinmei Sung in Taipei at csung4@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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