Bloomberg News

Taiwan Ends Rate Rises as Asian Economies Seek to Protect Growth

September 29, 2011

Sept. 30 (Bloomberg) -- Taiwan’s central bank refrained from raising interest rates, ending five straight quarters of increases as Asia’s policy makers seek to protect their economies from a faltering global recovery.

The central bank left the discount rate on 10-day loans to banks at 1.875 percent, it said in Taipei yesterday. Fourteen of the 17 economists surveyed by Bloomberg News predicted the decision. Three expected an increase to 2 percent.

Central banks from New Zealand to South Korea refrained from raising benchmark rates this month as Europe’s debt crisis and a struggling U.S. economy dimmed the outlook for the region’s exporters. A decline in Taipei home prices from a record earlier this year and slowing export-order growth have eased inflation pressures, weakening the case for further monetary tightening.

“The big environment has turned bad, with U.S., European economies not doing well, affecting Taiwan’s exports,” said Renee Yang, a Taipei-based economist at Yuanta Securities Co. The central bank “will probably keep interest rates unchanged again late December, or may even lower them if the economy turns for the worse.”

The Taiex stock index rose 0.5 percent yesterday, paring this year’s decline to 20 percent. The Taiwan dollar weakened 0.1 percent to NT$30.440 against its U.S. counterpart at the 4 p.m. close, according to Taipei Forex Inc. The local dollar weakened the most in more than 10 years on Sept. 22, dropping 1.4 percent.

Currency Moves

Taiwan is ready to curb any currency moves that result from “irregular” causes, the central bank said.

President Ma Ying-jeou’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.

“A global slowdown and consumer prices stabilizing led to the decision,” central bank Governor Perng Fai-nan told reporters yesterday. Taiwan’s imported inflation will cool as global prices ease in the next three months after peaking in the third quarter, he said.

Weaker Growth

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.

Still, “Taiwan’s economy won’t be as bad as back in 2008,” Perng said yesterday.

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.

Property Speculators

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.

The central bank, which has also tightened mortgage lending rules to fight real-estate speculation, said yesterday that its measures to control such risks have shown effect.

The average price of existing homes in Taipei fell 1.5 percent to NT$532,000 ($17,400) 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.

Taiwan’s banks have enough liquidity and the central bank will continue to issue longer-dated certificates of deposits, Perng said at a briefing in Taipei.

--With assistance from Ailing Tan and Alan Soughley in Singapore, Janet Ong, Yu-Huay Sun and Adela Lin in Taipei. Editors: Stephanie Phang, Shamim Adam

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