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Taiwan cuts key rate for first time since 2009 as exports falter

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Taiwan lowered its policy rate for the first time since the global financial crisis as the strength of its currency and China's slowdown dragged exports into a seven-month slump.

[TAIPEI] Taiwan lowered its policy rate for the first time since the global financial crisis as the strength of its currency and China's slowdown dragged exports into a seven-month slump.

The island's central bank cut the benchmark discount rate by 12.5 basis points to 1.75 per cent, it said in a statement in Taipei on Thursday. Eleven of 24 economists surveyed by Bloomberg predicted a cut, while the remaining 13 had expected the rate to be held for the 17th straight quarter.

Taiwan slashed its 2015 growth forecast last month as growth slowed in its biggest market China and the local currency's outperformance hurt competitiveness. The central bank already took a step toward easing in August, lowering the overnight rate for the first time in three years as local equities slid and China unexpectedly devalued its currency.

"A cut in the discount rate would provide a signal of confidence to investors that the central bank is taking the more uncertain growth outlook seriously," Mark Walton, a Hong Kong- based economist at BNP Paribas SA, said before the decision. "That would also have the side benefit of weakening the currency."

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Speculation of a rate cut mounted as the island's economic outlook deteriorated. In June, only two of 26 economists polled by Bloomberg expected a reduction in 2015, with three seeing a hike. Expectations for steady policy had helped make Taiwan's dollar among the best performing emerging-market currencies this year as central banks from China to India all eased cash supply.

Rates on short-term debt fell to record lows last month, while bond yields are already the lowest in Asia after Japan, suggesting to some economists that a benchmark rate cut was unnecessary.

"As long as they maintain liquidity in the banking system, they'll have achieved their objective, so lowering the discount rate isn't that meaningful," Raymond Yeung, a Hong Kong-based economist at Australia & New Zealand Banking Group Ltd, said before the meeting. "It'll just be a gesture."

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