Taiwan holds rate, warns of inflation after Fed's QE3

   The Central Bank of the Republic of China (Taiwan) (CBC) held its discount rate unchanged at 1.875 percent, as expected, to contain inflationary pressures despite a continuing economic slowdown.
    The central bank said exports were still contracting due to weaker external demand, and this is weighing on private investment and consumers. However, it expects the outlook to improve slightly in the second half of the year.
    "The global economy remains susceptible to downside risks," the bank said, adding the open-ended bond buying program unveiled by the U.S. Federal Reserve "might push up global inflation expectations and attract sort-term capital inflows to emerging Asia."
    "Such upsurges could be detrimental to price and financial stability and they deserve careful attention," the central bank said. It has held the discount rate unchanged since June 2011.

    Inflation in Taiwan rose to 3.42 percent in August, the highest in four years on increased food prices from typhoons and rains, up from 2.46 percent in July. Forecasts call for consumer prices to rise 2.32 percent on an annual basis in the fourth quarter and 1.93 percent for the full year.
    "Overall, the international economic uncertainties have yet to recede. At the same time, the domestic economy faces growing inflationary pressures, possibly to be further fueled by steeper inflation expectations driven by short-term capital inflows, following the US Fed's third round of quantitative easing," the central bank said, adding:
    "Against this backdrop, the Board judges that a rate hold is consistent with the CBC's mandated objectives to maintain price and financial stability."
   
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