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Central bank expected to leave interest rates unchanged

Taiwan's central bank will probably leave interest rates unchanged today after cutting them to a record low last year, and may raise borrowing costs as early as June to keep pace with US rates, economists said.

The bank will probably leave its rediscount rate, charged to commercial lenders for 10-day loans, at a record-low 2.125 percent at its quarterly board meeting, according to economists. But they expect an increase later this year. The bank will announce a decision after tomorrow's meeting, which starts at 3pm.

Rising US demand for computer chips and mobile phones will probably revive growth in Taiwan this year after the worst recession on record in 2001, and expected US rate increases may prompt Taiwan to follow suit. Still, Taiwan will probably wait for clearer signs of a rebound before tightening credit, analysts said.

"Taiwan's economic recovery is stable, but manufacturers' profits haven't revived," said Ellen Lee, an economist at International Securities Corp (國際證券). "The central bank will wait for profit to come back before it considers raising rates."

The bank slashed interest rates by more than half between December 2000 and December 2001, in 11 separate moves, to stem the economy's slide. It may have to change course in coming months as rising US rates raise the risk that investors will move money out of Taiwan seeking better returns.

The US Federal Reserve left interest rates unchanged last week and dropped its 15-month view that slowing growth is the biggest threat to the US economy, fueling expectations it may raise rates in coming months.

Taiwan's economy will probably expand 0.5 percent this quarter from a year ago.
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