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Taiwan’s central bank kept its benchmark interest rate at a record low and pledged to monitor property-price inflation, reinforcing forecasts for an increase in borrowing costs next year.

Governor Perng Fai-nan and his board left the discount rate on 10-day loans to banks at 1.25 percent yesterday, as forecast by all 11 economists surveyed by Bloomberg News.

Taiwan, emulating Asian counterparts such as South Korea, is putting off rate increases to encourage investment and private consumption and pull the economy out of a yearlong slump. The central bank said in a statement yesterday that it saw no inflation pressure and Perng told reporters that policy makers will closely monitor property prices.

“The central bank is keeping rates steady to help strengthen the economic recovery,” said Serena Tseng, an economist at Jih Sun Securities Co. in Taipei. “Low consumer prices provide scope for the central bank to focus on reviving the economy.”

Kevin Hsiao, director of wealth management research at UBS AG in Taipei, said the central bank may raise rates by 25 basis points in the second quarter of 2010 as an economic recovery strengthens.

Rates Unchanged

Japan’s central bank on Dec. 18 maintained its benchmark overnight lending rate at 0.1 percent, and the Bank of Korea on Dec. 10 kept its rate unchanged for a 10th month at a record-low 2 percent, while signaling it may increase borrowing costs as the economic recovery gathers pace.

Taiwan’s central bank set next year’s target for growth in M2 money supply at between 2.5 percent and 6.5 percent, the same as for this year. It said that liquidity in the financial system in enough to support economic activities.

The island’s gross domestic product shrank 1.29 percent in the three months through September, the least in a year, after a revised 6.85 percent contraction in the second quarter. The economy may expand 4.39 percent next year, the cabinet’s statistics bureau projected last month.

President Ma Ying-jeou’s administration plans NT$858.5 billion ($26.5 billion) of spending over four years, or about 6 percent of GDP, on infrastructure, consumer grants and tax cuts to help revive the economy. Perng lowered borrowing costs by 2.375 percentage points from September 2008 to February.

Falling Unemployment

Signs of a recovery have prompted employers to start hiring, with Taiwan’s unemployment rate falling for a second straight month in November, and companies including Taiwan Semiconductor Manufacturing Corp. forecasting better sales.

The benchmark Taiex stock index has climbed 74 percent this year, set for its best year since 1993, as investors bet the island’s economy is past the worst. The index climbed 21.13, or 0.3 percent to 7,984 easy fast payday loans.67 as of 12:11 p.m., rising for the sixth- consecutive day to its highest since June 19 last year. Taiwan’s dollar rose 0.2 percent to NT$32.247 against its U.S. counterpart at today’s lunch break, according to Taipei Forex Inc.

Low interest rates have boosted consumer spending and business investment. Domestic consumption climbed 2.2 percent in the three months through September, the first increase since the recession began.

Taiwan’s consumer prices will be “subdued” in the next three months, Governor Perng told reporters in a briefing after the rate decisions in Taipei yesterday.

Salary Increase

Taiwan Semiconductor, the island’s biggest company by market capitalization, said this month it will increase employees’ base salary by 15 percent, and capital spending next year will be “much higher” than the $2.7 billion budgeted for this year.

Taiwan’s exports climbed for the first time in 15 months in November, and consumer prices may increase 0.92 percent in 2010 after falling 0.73 percent this year, the statistic bureau said last month. The island’s top economic planner says the economy may grow 4.8 percent next year, the jobless rate fall to 4.9 percent and inflation run at 1 percent.

Economists including Chuang Rehong of SinoPac Securities Corp. in Taipei and Mill Lin of Chinatrust Commercial Bank say the central bank may shift to a tightening rate policy to curb excessive property-market movements after Perng last week repeated a call for lenders to monitor risks of deteriorating mortgage-loan quality.

Asset Bubbles

“The central bank has signaled its concerns on asset bubbles,” said Lin, who forecasts a rate increase in June 2010. “As long as the recovery persists, there is no reason for the central bank not to start raising borrowing costs.”

Taiwan’s central bank today issued a statement denying a newspaper report that said it is placing credit controls on properties in three metropolitan areas on the island. The Taipei-based Commercial Times said today the central bank is imposing credit controls in Taipei, Taichung and Kaohsiung.

Banks on the island of 23 million people have cut mortgage rates to the lowest since records began, helping drive up home prices 14.4 percent in the nine months through September, according to Sinyi Realty Co., Taiwan’s biggest real-estate brokerage.

Taiwan banks increased home loans by 4.3 percent to NT$4.91 trillion at the end of October from a year earlier, according to the central bank.

“I hope foreign inflows are for direct investment, not for purchases of assets,” Perng said.

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