Bloomberg News

Taiwan May End Five Quarters of Rate Rises as Growth Falters

September 28, 2011

(Updates forecasts in second paragraph, markets in fifth.)

Sept. 28 (Bloomberg) -- Taiwan will probably leave borrowing costs unchanged tomorrow, snapping a series of five straight quarterly increases, as a faltering global recovery slows an economic expansion that relies on exports.

The central bank will keep the discount rate on 10-day loans to banks at 1.875 percent, according to 14 of the 17 economists in a Bloomberg News survey. Three predicted policy makers will raise the key rate by 0.125 percentage point to 2 percent after lifting it by that amount from a record low in every quarter starting in June 2010.

Central banks from New Zealand to South Korea kept their benchmark rates unchanged this month, as Europe’s debt crisis and a struggling U.S. economy dimmed the outlook for Asia- Pacific exporters. A further decline in Taipei home prices last month from a record earlier this year and slowing export-order growth have eased inflation pressures, weakening the case for another rate increase.

“Sovereign debt dramas in both the U.S. and Europe and the global economic uncertainty look set to persist for the rest of 2011,” said Donna Kwok, an economist at HSBC Holdings Plc in Hong Kong. “With inflationary pressures under control, Taiwan’s central bank can well afford to keep the policy rate at 1.875 percent.”

The Taiex stock index rose 0.8 percent today, paring this year’s decline to 20 percent. The Taiwan dollar was little changed at NT$30.426 against its U.S. counterpart at 3:02 p.m. local time, according to Taipei Forex Inc. The local dollar weakened the most in more than 10 years on Sept. 22, dropping 1.4 percent.

Weaker Growth

Taiwan’s government last month cut its forecast for 2011 growth to 4.81 percent from 5.01 percent and said the expansion will slow to 4.58 percent in 2012. That’s less than half the growth pace in 2010 of 10.9 percent, which was the fastest expansion in Asia behind Singapore’s, according to International Monetary Fund data.

The administration also lowered its prediction for inflation this year to 1.59 percent from 1.89 percent. Consumer prices gained 0.96 percent last year.

Recent reports showed Taiwan’s inflation climbed a less- than-estimated 1.34 percent in August, while industrial production also rose a weaker-than-forecast 3.88 percent last month.

Overseas sales account for about two-thirds of the island’s $355 billion gross domestic product and help to drive factory output. The economy expanded 5.02 percent in the three months through June from a year earlier, the slowest pace since a 1.21 percent contraction in the third quarter of 2009.

Lowering Production

Taoyuan, Taiwan-based Quanta Computer Inc., the world’s biggest custom manufacturer of notebook computers, said last week it offered severance packages to some employees as it adjusts production.

Quanta will offer early retirement to more than 1,000 workers at its Linkou plant, after poor sales of client Research In Motion Ltd.’s Playbook tablet computers, the Taipei-based Commercial Times reported Sept. 21.

To deter housing speculators, Taiwan in June began imposing a 15 percent tax on some residential homes sold within a year of purchase, and a 10 percent levy on some sold within two years.

Central bank Governor Perng Fai-nan and the policy board have also tightened mortgage lending rules to fight real-estate speculation.

The average price of existing homes in Taipei fell 1.5 percent to NT$532,000 ($17,464) per ping, equivalent to 36 square feet, in August, after declining the previous month from a record NT$556,000 in June, according to Sinyi Realty Co., the island’s biggest real-estate brokerage.

--With assistance from Lily Nonomiya in Tokyo. Editors: Brendan Murray, Michael Heath

To contact the reporters on this story: Chinmei Sung in Taipei at csung4@bloomberg.net; Ailing Tan in Singapore at atan193@bloomberg.net

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


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