Taiwan's CBC likely to cut rates at March meeting

Data released earlier today showed that Taiwan's industrial production fell 6.17% y/y in December (Nov: -4.9%; Oct: -6.3%), worse than consensus. On a m/m basis, Taiwan's IP posted the first negative contraction following three consecutive months of small but positive expansion.

Data implies 2015 full-year production likely contracted by 1.7% y/y, compared to a solid 6.4% expansion in 2014, noted Barclays. The Nikkei PMI showed a significant advancement, with the manufacturing PMI swinging back to 51.7, after eight straight months of sub-50 prints. This increases the chance that the upcoming Q4 GDP release may undershoot the government forecast of 0.5% y/y in Q4, with the full-year growth likely to shy away from the 1% target.

That said, the outlook for manufacturing and production still remains weak. Frontloading of production ahead of the Lunar New Year holiday could be the reason behind the improvement in PMI. Given external demand is unlikely to improve meaningfully going into 2016, the softness in manufacturing to persist.

"Against the backdrop of a deteriorating labour market, which may cut into domestic consumption more deeply in Q1 16 and the inflation outlook remaining subdued in 2016, we now expect the CBC to cut its policy rate by another 12.5bp in its March meeting," notes Barclays in a report.