Taiwan holds interest rate to support economy

HONG KONG: 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 kept the discount rate on 10-day loans to banks at 1.875%, it said in a statement in Taipei yesterday, as predicted by all 22 economists in a Bloomberg survey.

The monetary authority had held borrowing costs since June 2011, the longest period of inaction, its data showed.

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 United States 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 Kongbased senior strategist at Credit Agricole CIB, said before the release. “With China’s economy bottoming out and the American economy continuing to recover, we’re positive about Taiwan.”

Taiwan President Ma Ying-jeou has simplified investment procedures, pursued trade agreements with the United States 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 was looking into changes in luxury-tax rules to narrow the gap between property prices and incomes.

The finance ministry was 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. — Bloomberg