Bloomberg News

Taiwan Extends Rate Pause as ‘Global Ructions’ Threaten Economy

December 29, 2011

Dec. 29 (Bloomberg) -- Taiwan’s central bank left interest rates unchanged for a second straight quarter to support domestic spending as Europe’s sovereign-debt crisis hurts exports and threatens jobs.

The central bank left the discount rate on 10-day loans to banks at 1.875 percent, it said in Taipei today. Eleven of 15 economists predicted the decision in a Bloomberg News survey. Four expected policy makers to cut the key rate to 1.75 percent after keeping it unchanged in September for the first time in six quarters.

Pressure is mounting on Asian policy makers to protect their economies as Europe struggles to contain a two-year-old crisis that began in Greece, while the death of North Korean leader Kim Jong Il this month raised the risk of political instability. In Taiwan, President Ma Ying-jeou is seeking re- election next month amid slowing growth, a stock market slump, near-record home prices and stagnant wages.

“Global ructions have led the central bank to refrain from tightening policy further,” Katrina Ell, a Sydney-based economist at Moody’s Analytics, said before the decision. “If the global environment deteriorates, rate cuts are expected.”

The Taiex stock index has tumbled 21 percent in 2011, heading for its worst year since the 2008 global financial crisis, according to data compiled by Bloomberg. The index ended up 0.3 percent before today’s report. The Taiwan dollar was little changed at NT$30.29 against its U.S. counterpart at the 4 p.m. close, according to Taipei Forex Inc.

Central banks in Indonesia, the Philippines and South Korea all kept their benchmark rates unchanged this month as Europe’s debt crisis dimmed the outlook of Asian exporters.

Pay Cuts

Taiwan’s government last month cut its forecast for 2011 GDP growth to 4.51 percent and said the economy’s expansion will slow to 4.19 percent in 2012. The administration also lowered its projection for inflation this year to 1.37 percent from 1.51 percent, and forecasts consumer prices will rise 1.14 percent in 2012.

Taiwan’s inflation eased to a 13-month low of 1.01 percent in November, while industrial production declined 3.55 percent. Exports are equivalent to about two-thirds of Taiwan’s economy, which expanded at the slowest pace since 2009 last quarter.

Taipei-based Acer Inc., the world’s fourth-biggest computer maker, has lost money and market share for the past two quarters amid stiffer competition and inventory write-offs in Europe.

AU Optronics Corp., a Hsinchu, Taiwan-based maker of liquid-crystal displays, last month cut the salaries of its president and vice-presidents by 15 percent after posting a third-quarter loss, while a total of 100 companies reached agreements with 10,130 workers to take unpaid leave as of Dec. 15, the Council of Labor Affairs said this month.

The average price in existing homes in Taipei climbed 1.8 percent to NT$558,000 per ping, equivalent to 36 square feet, in November, after declining the previous month from a record NT$571,000 in September, according to Sinyi Realty Co., the island’s biggest real-estate brokerage.

--With assistance from Ailing Tan in Singapore, Janet Ong and Adela Lin in Taipei. Editors: Stephanie Phang, Patrick Harrington

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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