Taiwan Holds Key Rate to Support Economy as Inflation Slows

Taiwan kept its benchmark interest rate unchanged for a ninth straight meeting to bolster the island’s economic recovery as inflation cools.

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 22 economists in a Bloomberg News survey. The monetary authority has kept borrowing costs unchanged since June 2011.

Taiwan’s inflation has slowed since February this year and prices fell last month for the first time since 2010, which gave policy makers room to support the economic rebound. Exports, which account for about three-quarters of gross domestic product, climbed for a fourth straight month in August as data from China and the U.S. showed global demand may be improving.

“The economy isn’t so strong that it warrants a rate hike, especially since inflation is so close to deflation,” Frances Cheung, a Hong Kong-based senior strategist at Credit Agricole CIB, said before the decision. “With China’s economy bottoming out and the American economy continuing to recover, we’re positive about Taiwan.”

Taiwan’s dollar has risen about 1.5 percent this quarter against its U.S. counterpart, even as earlier concern that the Federal Reserve would taper monetary stimulus as early as this month triggered an emerging-market rout. Global funds bought more local equities than they sold for a 19th day yesterday, taking net purchases in 2013 to $5.41 billion, exchange data show.

Output Falls

China is taking steps to stabilize growth and can achieve its main economic targets this year, Premier Li Keqiang said this month. A manufacturing index climbed to a six-month high in September, data showed earlier this week, signaling that a rebound in Taiwan’s largest export market is gaining steam.

Pressure to support growth remains. Taiwan’s statistics bureau last month cut its 2013 forecasts for expansion and exports growth. Industrial production fell 0.7 percent in August from a year earlier, data showed today.

Taiwan will maintain a “moderately loose” monetary policy, the central bank said. “The economy is growing modestly and there are no inflation concerns. However, the global recovery is still slow and the economic outlook is still uncertain.”

Trade Deals

Taiwan President Ma Ying-jeou has simplified investment procedures, pursued trade agreements with the U.S. and Asia and relaxed immigration rules to bolster the economy. He has also boosted ties with the mainland by allowing domestic banks to conduct business in yuan and agreeing to lower tariffs on items from auto parts to textiles.

The government has taken measures to contain real-estate prices and said in July it is looking into changes in luxury-tax rules to narrow the gap between property prices and incomes. The finance ministry is considering a new tax on home buyers who own more than three housing units to crack down on hoarding, the Economic Daily News reported last month.

Controls have yielded effects in the real-estate market and the central bank will continue to monitor mortgage risks, it said today.

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