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Foreign banks expect Taiwan's central bank to leave interest rates unchanged

TAIPEI -- Several foreign banks said yesterday that they expect the Central Bank of Republic of China (Taiwan) will leave key interest rates unchanged in an upcoming quarterly policymaking meeting scheduled for Dec. 26.

The banks, including Australia and New Zealand Banking Group Ltd. (ANZ), Standard Chartered Bank, DBS Bank and Barclays Bank, said that due to the slow pace of the local economic recovery, it is too early at present for the central bank to push up interest rates.

Raymond Yeung, a senior economist with ANZ, said the central bank needs to maintain ample liquidity to boost the economy, in particular after the government has repeatedly cut its forecast for Taiwan's gross domestic product (GDP) growth for 2013.

In late November, the government downgraded its estimate for 2013 GDP growth to 1.74 percent from an earlier estimate of a 2.31-percent increase made in August.

It was the third time the government had cut its 2013 GDP growth prediction, citing slower exports and weakening private consumption and investment.

Yeung said the U.S., the world's largest economy, is expected to grow at a faster pace in 2014, which could boost Taiwan's exports, but added that the strength of the local economic recovery will not be significant enough for the central bank to raise interest rates any time soon.

In addition to the downgrading of Taiwan's GDP growth forecast for 2013, the government has cut its prediction for the country's 2014 economic growth to 2.59 percent from 3.37 percent.

Yeung said the central bank is likely to raise interest rates at the end of next year at the earliest.

Tony Phoo, the chief economist with Standard Chartered Bank, said he does not expect the central bank to change its course at the upcoming meeting, but added that it is likely the central bank will raise interest rates in the first quarter of next year at the earliest.

Phoo said the need for the central bank to tighten its monetary policy in the next quarter reflects upward pressure on local consumer prices, largely after electricity rate and high-speed railway fare hikes in October.

In the last quarterly policymaking meeting held in late September, the central bank left its key interest rate unchanged, with the discount rate at 1.875 percent. It was the ninth consecutive quarter in which the bank had maintained its monetary policy.

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