Taiwan Holds Key Rate After GDP Growth Forecasts Trimmed

Taiwan held its benchmark interest rate for a 10th straight meeting after it lowered its forecasts for economic growth and inflation this year and next.

The central bank kept 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 27 economists in a Bloomberg News survey. The monetary authority has refrained from adjusting borrowing costs since June 2011, the longest period of inaction, according to its data going back to 1980.

Taiwan joins economies from Indonesia to India in holding rates this month to bolster growth. The government last month trimmed the island’s expansion forecast for this year to 1.74 percent from 2.31 percent earlier and said exports may increase at a slower-than-estimated pace of 0.44 percent. It cut the inflation prediction for 2013 to 0.94 percent.

Taiwan’s inflation is still low, so there’s no need to raise the rate,” Raymond Yeung, a Hong Kong-based economist at Australia & New Zealand Banking Group Ltd., said before the release. “With export data softening lately, growth prospects look bumpy. Considering the balance between growth and inflation, maintaining the key rate is the best call.”

Taiwan’s dollar last week had its biggest weekly loss since June after the Federal Reserve said it will reduce stimulus that had spurred demand for emerging-market assets. The currency closed little changed against the U.S. dollar today before the decision and has slipped about 3 percent this year.

‘Adequately’ Loose

The inflation outlook for next year is stable, the central bank said in the statement today. The monetary authority will maintain an “adequately loose” policy stance, and there is little room to raise rates if GDP growth is slow, Governor Perng Fai-nan said.

The central bank will continue to monitor industrial-zone and luxury mortgages and will step into the foreign-exchange market in the event of any irregularities, it said.

Exports (TWTREXPY), which made up about 60 percent of Taiwan’s economy in the third quarter, fell in September and October from a year earlier and were unchanged last month on slower demand from China, its biggest overseas market. Smartphone maker HTC Corp.’s sales have missed analyst estimates for nine straight quarters.

Taiwan signed a free-trade agreement with Singapore last month to diversify its economic allies beyond China. A failure to pass a pact opening up the service sectors of Taiwan and China to each other could cap next year’s growth at 2.5 percent, Marcella Chow, a Taipei-based economist at Bank of America Merrill Lynch, said Dec. 17.

The economy may grow 2.59 percent in 2014, the statistics bureau said last month, lower than the 3.37 percent pace forecast in August. It lowered its inflation estimate for next year to 1.21 percent from 1.39 percent.

To contact the reporters on this story: Justina Lee in Hong Kong at jlee1489@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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