UPDATE 2-Taiwan leaves policy rate on hold, acts to cool property prices

Thu Jun 26, 2014 6:38am EDT

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By Faith Hung and Jeanny Kao

TAIPEI, June 26 (Reuters) - Taiwan's central bank kept its policy rate unchanged at 1.875 percent, leaving the rate where it has been for the last three years as its governor said a nagging concern for the export-led economy was the uncertain global outlook.

The central bank's quarterly policy meeting maintained an accommodative monetary stance, as expected, though it decided to take steps to cool property prices in the north of the island by raising downpayment requirements for high-priced properties.

Consumer price inflation, at 1.61 percent in May, was below the central bank's 2 percent comfort level, and Governor Perng Fai-nan told a news briefing that inflation was under control.

Exports and domestic consumption have been in better shape since last year, the governor said. But he voiced concern, noting: "The global economic outlook is still uncertain."

The government has said that it expects Taiwan's economy to grow at 2.98 percent this year, marking its best showing since 2011.

But, analysts saw the central bank's inaction on rates as a sign of caution.

"It shows the central bank prefers to err on the safe side, and appears to want to wait until more signs that the recovery is sustainable and gaining speed, and until the upside risk to inflation becomes more evident," aid economist Tony Phoo of Standard Chartered in Taipei.

Most economists expect the central bank to track the U.S. Federal Reserve and raise interest rates sometime next year.

Growth of Taiwan's exports and export orders in May missed expectations, placing a questionmark over demand for the tech products Taiwan specialises in, after the optimism generated by April's export growth of 8.9 percent notched a 15-month high.

Industrial output has shown a steady upward climb, with the index hitting a single-month record high in May, while the jobless rate of 3.99 percent in May was the lowest since July 2008.

The stock market has also been booming. The main TAIEX share index recently notched its highest closing level in more than six years, and has attracted more inflows of foreign funds than anywhere in Asia except India.

(Additional reporting by Michael Gold; Editing by Simon Cameron-Moore)

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