Taiwan Holds Rate a Sixth Time as Economy Starts to Rebound

Taiwan kept interest rates unchanged for a sixth straight meeting amid signs the island’s growth is gathering pace and inflation has stabilized.

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. The decision was predicted by all 23 economists in a Bloomberg News survey. The monetary authority has refrained from adjusting borrowing costs since June 2011.

Taiwan follows Asian nations including South Korea and India in refraining from cutting rates as data from China and the U.S. show the global economy may be recovering. The island last month raised its growth estimates for 2012 and 2013, while inflation has slowed from a four-year peak in August.

“Taiwan’s economy is recovering, it’s past the point of a rate cut,” said Sylvia Chiu, an economist at SinoPac Financial Holdings Co. in Taipei. “Although rises in consumer prices had been quite rapid, they have subsided.”

The Taiwan dollar closed little changed at NT$29.102 against its U.S. counterpart before the rate decision. It is among the best performers this year of the 11 most-widely traded currencies tracked by Bloomberg, having gained more than 4 percent. The benchmark Taiex Index advanced 0.4 percent.

The currency is headed for a fourth annual gain, undermining the profit potential of companies including Taiwan Semiconductor Manufacturing Co. and HTC Corp. The central bank has stepped into the currency market to slow appreciation.

China Demand

Exports, which make up about 60 percent of the island’s gross domestic product, have fallen for eight months in 2012, and the statistics bureau estimates shipments will contract 2.16 percent this year. Still, overseas sales climbed 0.9 percent in November from a year earlier as demand from China improved, and Governor Perng Fai-nan said today the decline in sales will slow.

“Taiwan’s economic growth will be steady and slow in 2013 as exports and private investment recover,” Perng said at a briefing today. The European debt crisis and the so-called U.S. fiscal cliff pose uncertainties, even as China appears to have stabilized, he said.

The slowdown in the Chinese economy appears to have bottomed out, the World Bank said today. Taiwan’s largest trading partner has set its initial target for economic growth at 7.5 percent for a second year, two bank executives and a regulatory official said this month, asking not to be named as they weren’t authorized to disclose the details.

Closer ties between China and Taiwan through trade and investment relations, as well as a currency clearance agreement, can boost the island’s domestic consumption, according to Wai Ho Leong, a Singapore-based regional economist at Barclays Plc.

Selective Controls

“The main catalyst for domestic demand is the evolution of cross-strait ties,” Leong said in a note. These are “awakening the exportable services engines of the economy -- in tourism-related services and real estate -- creating new job and investment opportunities.”

Taiwan’s unemployment rate held at 4.3 percent in October, the highest in more than a year. President Ma Ying-jeou’s approval rating is at a record-low 13 percent, according to a November poll by Taiwan cable news network TVBS.

The island’s monetary authority imposed selective credit controls on luxury housing from June, and has scaled back open-market operations to pump money into the market. The outstanding amount of certificates of deposits have dropped to NT$6.6 trillion ($227 billion) from this year’s peak of NT$7 trillion in March. The central bank auctions 30-, 91-, and 182-day bills every day to control liquidity in the financial system.

The economy may expand 1.13 percent this year and 3.15 percent next year, the government said last month. Inflation is forecast at 1.93 percent in 2012 and 1.27 percent in 2013.

Inflation slowed for a third month in November, with the consumer price index climbing 1.59 percent from a year earlier, the slowest pace in seven months. A planned electricity price increase has been postponed to next year.