"In sum, the domestic economy has expanded moderately, and inflationary pressures are subdued. On the other hand, global economic recovery is proceeding at a gradual pace, and uncertainty in the global economic outlook remains," said the Central Bank of the Republic of China (Taiwan), which has held its discount rate steady at 1.88 percent since June 2011.
Although Taiwan's dollar has been largely steady since mid-February, the central bank said massive foreign capital movements had impacted its exchange rate and if there is excess volatility and disorderly movements in the exchange rate, the bank "in line with its statutory mandate, will step in to maintain an orderly market."
The Taiwan dollar has risen slightly against the U.S. dollar since late August, trading at 29.5 to the U.S. dollar today, up from 30 in late August but slightly below 29.05 at the start of the year.
Exports from Taiwan have been growing mildly "amid stabilizing demand from the US, Europe and China, while private demand and investment were both muted," the bank said, noting the government forecasts growth of an annual 2.61 percent in the fourth quarter, slightly higher than 2.47 percent projected for the third quarter.
In the second quarter, Taiwan's Gross Domestic Product expanded by 0.58 percent from the first for annual growth of 2.49 percent, up from 1.62 percent in the first quarter.
For the full year, the central bank said the economy is forecast to expand by 2.31 percent before strengthening to 3.37 percent in 2014 as improved global growth boosts exports.
The central bank said economic growth in advanced economies had recently gained some momentum while emerging economies, including China, had stabilized and international forecasters are projecting a pick up in global growth.
"However, the issues of the US debt ceiling and the Federal Reserve's withdrawal from quantitative easing, coupled with volatile cross-border flows, have increased financial instability in some emerging economies," leading to heightened uncertainty about global financial stability and recovery.
Taiwan's inflation rate turned negative in August, with consumer prices falling by 0.79 percent from July's scant rise of 0.06 percent and the central bank said inflation averaged 0.87 percent in the first eight months of the year.
The government forecasts a slightly higher inflation rate of 1.64 percent for the fourth quarter and an average 1.07 percent for 2013 due to the supply of fruit and vegetables constrained by typhoons and torrential rains in recent months.
Next year inflation is forecast to average 1.34 percent due to "gentle inflationary pressures across the globe due to moderate economic recovery and stable international raw material prices."
New housing loans extended by Taiwan's five leading banks since the beginning of the year have been mostly lower compared with the same period last year, but the central bank cautioned that it was keeping an eye on banks' management of mortgage related risks and since mortgage payments were now exceeding 30 percent of household income, "borrowers are advised to be mindful of risks stemming from future interest rate changes."