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Interest rates expected to stay steady in next two quarters

TAIPEI -- Taiwan's central bank is unlikely to adjust its key interest rates in the next six months because of sluggish economic fundamentals at home, Australia and New Zealand Banking Group Ltd. (ANZ) said.

"Taiwan's output gap remains slightly negative and inflation continues to be subdued," meaning the central bank is likely to maintain a stable monetary policy, said Raymond Yeung, a senior economist at ANZ Research.

Unless a major change is seen in the economic environment, the central bank will leave interest rates unchanged at its next quarterly policymaking meeting in June, Yeung forecast in a research note.

Taiwan's central bank decided to hold its benchmark discount rate at 1.875 percent on yesterday, in-line with expectations. The discount rate has remained unchanged since July 2011.

Inflationary pressures will become stronger in Taiwan in the second half of 2013, however, as economic growth momentum in China and the United States picks up, which could lead the central bank to rethink interest rates by the end of the year, the economist said.

"Our baseline projection remains that the central bank will start to raise (key interest) rates in the last quarter of 2013 at the earliest," he said.

A rate hike could come at the bank's policymaking meeting in December, he predicted.

ANZ also forecast a "mild movement" for the New Taiwan dollar, expecting it to depreciate against the U.S. dollar but by less than the South Korean won's fall against the greenback.

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