TAIPEI - TAIWAN'S central bank unexpectedly cut interest rates by 25 basis points on Sunday, its fourth reduction in just over a month as fears of a global recession threatens the export-led economy.

The move, which put the benchmark discount rate at 2.75 per cent, the lowest level since March 2007, came after the world's leading economies agreed on the need to take measures to spur growth.

It also came days after the European Central Bank and the Bank of England slashed rates.

Taiwan's central bank made the decision after the technology-reliant island's October exports, a key driver of economic growth, posted their biggest annual fall in 3-years and annual inflation for the same month dropped to a one-year low.

The latest interest rate will be effective from Monday.

'We decided that we have to take action after looking at inflation data, IMF (International Monetary Fund) forecasts and export figures over the past week,' Central Bank Governor Perng Fai-nan told a news conference.

'The central bank's job is to control inflation. Once that's achieved, we'll have to take a look at economic growth,' he said.

The central bank said in a statement imported inflationary pressures had decreased significantly after global commodities prices fell sharply.

The IMF said on Thursday the developed world, the destination of many of Taiwan's export products, faced a full-year contraction in 2009, the first since World War II.

Before Sunday's decision, Taiwan had announced cuts in its main policy rate on Sept 25, Oct 9 and Oct 30 by 25 basis points each as the world faces its worst financial crisis since the Great Depression.

Surprise rate cuts
Taiwan's central bank had called for emergency meetings on Oct 9, Oct. 30 and Sunday. Its next scheduled quarterly monetary policy board meeting will be held in late December.

Analysts said Taiwan's latest move highlighted increasing concerns over the slowing economy.

'The fact that they have been moving so frequently in recent weeks basically reinforces the case that they are very concerned about risks on the growth front,' said Ms Grace Ng, an economist at JPMorgan in Hong Kong.

'Exports will continue to be pretty weak. We have seen a quarter-on-quarter decline already and I guess the trend will continue,' Ms Ng said.

On Friday, the government said Taiwan's exports had fallen by an annual 8.3 per cent, worse than market expectations as demand from the United States and China declined sharply.

Mr Perng told the news conference he was unsure whether Taiwan faced a recession, having said in October there was no recession risk in the island.

The market expected the surprise rate cut to give an added boost to Taiwan's stock market on Monday after US stocks ended 2.9 per cent higher on Friday.

'This is such as unexpected move, which will spur positive market sentiment further when the market opens tomorrow,' said Mr Tu Jin-lung, chief of Grand Cathay Investment Services.

Some dealers saw the expected stocks rise boosting the Taiwan dollar in the short term, though the local currency would likely weaken towards T$33 as the central bank might prefer a softer currency to help boost exports.

The Taiwan dollar ended at T$32.824 on Friday.

Yields on the domestic bond market could also be pressured, with the benchmark 10-year bond seen trading between 1.85 per cent and 1.95 per cent in coming days after ending at 1.9430 on Friday, dealers said. -- THOMSON REUTERS