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Taiwan's central bank kept interest rates at a record low of 1.25 percent as expected on Thursday, and signalled it could be one of the last in the region to start raising rates despite emerging signs of economic improvement. It said the pace of economic contraction has eased, a slightly less pessimistic assessment than it had offered at its previous quarterly meeting in June, when it said the economy had bottomed out.
But it suggested it was in no hurry to tighten policy, saying it expected consumer prices - a key focus for policy decisions - to remain stable and rising asset prices were not a concern. "We have to consider the inflation outlook. We are quite comfortable with this year's consumer prices. Even though our consumer prices are falling slightly, our core CPI is around zero," Governor Perng Fai-nan told a news conference.
During the first eight months of the year, core consumer prices rose just 0.23 percent from the same period a year earlier. The $390 billion economy grew for the first time in five quarters in the three months to June on a seasonally adjusted, annualised basis, with the annual pace of contraction easing to 7.5 percent from a record 10 percent in the previous quarter.
While its key exports sector has been recovering, helped by demand from China, the island's jobless rate remains at a record high of 6 percent, suggesting any recovery in consumer spending will be gradual. The central bank said in June it will consider raising rates only if inflation, GDP and the jobless rate reach pre-crisis levels. Taiwan's central bank kept its key money supply growth target at 2.5-6.5 percent although growth in M2 has been exceeding its previous target of for most of this year. Data on Thursday showed M2 supply grew 8.17 percent in August from a year earlier.

Copyright Reuters, 2009

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