Taiwan c.bank says to ensure stable consumer prices

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TAIPEI, Sep 29 (Reuters) Taiwan's central bank said it will take appropriate measures to ensure the island's consumer prices remain steady, a week after it raised interest rates to a six-year high to keep inflation in check.

Some analysts expect the central bank to continue to raise interest rates in the fourth quarter after 13 consecutive quarterly rises to curb inflationary pressure, despite expectations that the Federal Reserve might cut US rates further later this year.

''We will take necessary action, according to what the inflation trend is, to maintain the central bank's policy aim of maintaining steady consumer prices,'' Central Bank Governor Perng Fai-nan said yesterday in a report to be delivered to the parliament on Monday.

Last week, the central bank raised its benchmark discount rate by 12.5 basis points to a six-year high of 3.25 percent and hinted at more increases to come, due to the threat of inflation.

In Perng's latest report, he reiterated comments that the central bank had been adjusting rates gradually to push market rates closer to a neutral level.

''We're expecting another rate rise in Taiwan in the fourth quarter, but whether that's the last time in this series will depend on the strength of the U.S. economy,'' said Ma Tieying, an economist at DBS in Singapore.

''Taiwan's inflation picture won't be a pretty one in coming months as oil prices have hit record highs again. Typhoons will also push up food prices, though I think inflation will still be within 2 percent in the near term,'' she said.

In the first eight months, Taiwan's consumer price index rose an annual 0.6 percent, with some analysts predicting inflation would be more than 2 percent in the second half of the year due to high raw material prices and typhoons lifting food costs.

The bank also said it would maintain an orderly foreign exchange market to smooth out major fluctuations if there were any market irregularities.

Yesterday, the Taiwan dollar rose as high as T.500 to the U.S. dollar, its strongest intraday level since early January, due to moves by the central bank, purchases of local currency by foreign institutions and U.S. dollar selling by exporters.

The Taiwan dollar relinquished some of its gains to end at T.667, still higher than the previous close T.825.

In the latest report, Perng said a rise in prices of completed houses had also eased, easing fears that the island's real-estate sector was in danger of overheating.

Reuters MP VP0735

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