Economic Analysis - Rate Hold To Persist Until End-2017 - SEPT 2017

BMI View: In line with our expectations, the CBC kept its discount rate at 1.375% during its monetary policy meeting on June 22. We maintain our forecast for the central bank to remain on hold throughout 2017 as it seeks to strike a balance between ensuring financial stability while supporting growth and keeping inflation manageable.

The Central Bank of the Republic of China (Taiwan) (CBC)'s decision to keep its discount rate on hold at 1.375% during its monetary policy meeting on June 22 was in line with our expectations. In its statement, the CBC maintained its accommodative monetary policy stance due to 'uncertainties in the global economy', which could lead to weaker domestic growth in H217. With the Taiwanese dollar having strengthened by 6.4% against the USD since the beginning of the year, the central bank is unlikely to seek to hike rates which would lead to further inflows and currency appreciation, undermining export competitiveness. On the other hand, with growth having stabilised and inflation remaining on a gradual uptrend, there is no compelling reason for the central bank to cut rates to support growth. We therefore maintain our forecast for rates to remain at 1.375% throughout 2017 as the central bank seeks to strike a balance between its various objectives.

Rate Hikes Would Place Further Appreciatory Pressure On The TWD

Broad Appreciatory Trend Remains Intact
Taiwan - Exchange Rate, TWD/USD
Source: BMI, Bloomberg

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