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Taiwan raises 2021 growth forecast as strong exports lift economy

Central bank also keeps policy rate unchanged amid uptick in COVID cases

Taiwan's central bank raised its 2021 estimate for GDP growth to 5.75% from the 5.08% forecast in June.   © Reuters

TAIPEI (Reuters) -- Taiwan's central bank revised up the island's growth outlook for the year on Thursday as strong exports bolstered a trade-reliant economy that has boomed even in the face of local COVID-19 cases, also keeping interest rates steady as expected.

Taiwan's economy has continued to perform strongly despite an uptick in infections that began in May -- now well under control -- buoyed by strong global demand for its tech products as many people work and study from home during the pandemic.

The central bank raised its 2021 estimate for gross domestic product (GDP) growth to 5.75% from the 5.08% forecast in June.

Growth hit 3.11% in 2020, after expanding 2.71% in 2019.

GDP expanded by 7.43% in the second quarter of 2021, down from 8.92% in the first quarter, pulled lower by a partial lockdown to prevent domestic COVID-19 infections from spreading.

For 2022, the bank said it saw GDP expanding 3.45%, with major economies continuing to recover and demand for new technologies remaining strong, helping Taiwan's exports and domestic investment.

The central bank kept the benchmark discount rate at a record low of 1.125%, as expected by all 25 economists in a Reuters poll.

It has kept its policy rate unchanged at every quarterly meeting since cutting it in March 2020.

Central bank governor Yang Chin-long told reporters the economy was not overheating and that the rate will be adjusted "at an appropriate time", depending on factors like inflation and rate decisions by major economies.

Taiwan's decision to hold fire on rates comes after the U.S. Federal Reserve on Wednesday said it will likely begin reducing its monthly bond purchases as soon as November, and signaled interest rate increases may follow more quickly than expected as the United States' turn from pandemic crisis policies gains momentum.

Yang said the accommodative monetary policies from major economies remain unchanged and that "even with the tapering ... it will take a while (for them) to adjust interest rates."

Kevin Wang, an economist at Taishin Securities Investment Advisory Co, said he saw no rate hike on the island into the first half of next year, with any decision by Taiwan taking into account the end of quantitative easing in the United States.

"If the economy is good then, I expect the Fed will consider raising rates in the second half of next year. Only then is it possible Taiwan will follow suit."

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