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Experts believe central bank likely to keep interest rates unchanged

The China Post news staff--Inflation is among reasons that the central bank is likely to keep its key rates unchanged during its upcoming board meeting, local and foreign experts said yesterday.

Inflation has been rampant over the past few months due to rising gasoline and food prices in the wake of several typhoons. The consumer price index (CPI) has risen by over 2 percent both in July and August, with the figure for last month hitting 3.42 percent, a new high in four years. From January to August, price increases averaged 1.84 percent, approaching the 2 percent cautionary line set by the government.

At the same time, Taiwan's 2012 economic growth is set to be 1.66 percent, according to the latest statistics released by the Directorate-General of Budget, Accounting and Statistics, below the 2 percent originally set by the government. Concerns linger over the prospect the figure may drop to below 1 percent this year.

With inflation worsening and the economy stagnant, how the central bank will combat the situation remains to be seen. The Central Bank of the Republic of China (Taiwan) is set to have its upcoming board meeting on Sept. 20.

Liang Kuo-hsin, president of the local Polaris Research Institute, predicted that the central bank will keep rates unchanged yet will use other open market operations to adjust its monetary policy.

Meanwhile, experts said inflation was not as severe as it seems, as the August CPI increase was due to a rise in food prices, which are set to go down in the next couple of months.

They also said the European central bank has eased its monetary policy, a move that will be followed by the U.S. Federal Reserve. Their actions are expected to lead to an international oil price increase and inflation.

Yet that scenario has not happened, experts said. What has happened is declining exports. As a result, the central bank is expected to take a balanced approach and keep rates unchanged, they said.

Meanwhile, foreign experts offered the same opinion. Citibank, Standard Chartered and ANZ have all predicted the central bank will keep its discount rate at the current 1.875 percent.

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