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Taiwan Holds Key Rate a Seventh Time as Economy Recovers

March 28 (Bloomberg) -- Taiwan kept the benchmark interest rate unchanged for a seventh straight meeting as economic growth gathers pace on China’s recovery and inflation pressures recede.

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 20 economists in a Bloomberg News survey. The monetary authority has refrained from adjusting borrowing costs since raising the benchmark in June 2011.

Taiwan follows Asian nations including South Korea and Thailand in holding policy rates as data from China and the U.S. show the global economy is recovering. The island last month raised its estimates for exports and gross domestic product in 2013, and the central bank has said inflation will be more stable this year than in 2012.

“With signs that the economy is gradually improving, we now expect interest rates to remain on hold for the remainder of the year,” Gareth Leather, a Singapore-based economist at Capital Economics Ltd., said in an e-mailed note after the decision. “Weakening commodity prices should keep inflation well contained this year.”

The benchmark Taiex index of stocks fell 0.4 percent at the close before the decision, while the local dollar closed unchanged at NT$29.94 against its U.S. counterpart.

Currency Falls

The Taiwan dollar has lost almost 3 percent this year against the U.S. currency as the yen’s decline fanned concern the island’s central bank will influence the exchange rate to protect exporters. The monetary authority will maintain order in the foreign-exchange market if needed, it said today in a statement.

The island’s biggest companies, including Taiwan Semiconductor Manufacturing Co. and HTC Corp., compete with Japan’s Sony Corp. and South Korea’s Samsung Electronics Co. for global market share. President Ma Ying-jeou has fostered closer ties with China through trade and investment relations, as well as a currency clearance agreement, to boost domestic consumption and exports.

Governor Perng Fai-nan said today South Korean and Japanese exports are 83 percent similar, compared with 38 percent for Taiwanese and Japanese shipments. The statistics bureau estimates overseas sales will increase 6.23 percent this year, with the economy expanding 3.59 percent.

Property Prices

Perng, who was re-appointed to a fourth term last month, said monetary policy is moderately loose. Consumer prices rose 2.97 percent in February from a year earlier and inflation is forecast to average 1.37 percent this year.

The central bank said it has ordered lenders to exercise discipline while extending mortgages in areas where property prices have risen “to a large extent.”

Taiwan joins Asian economies from Hong Kong to Singapore in seeking to rein in real-estate prices. Perng introduced a 70 percent cap on loans for second homes in the Taipei metropolitan area in September 2010. Housing prices in Taipei, the seat of Taiwan’s government, have more than doubled since 2000 and reached a record high in January, according to Sinyi Realty Co.

To contact the reporter on this story: Andrea Wong in Taipei at awong268@bloomberg.net

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

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