CBC likely to keep its benchmark rate unchanged

Taiwanese industrial production fell 5.3% y/y in September, below expectations. As with the disappointing September exports release, a slow inventory adjustment continued to weigh on electronics. Indeed, TSMC Chairman Morris Chang noted that the inventory correction could extend into Q4, depressing purchasing activity and production. 

Still-elevated inventory levels offset the lift from the launch of the iPhone 6, as well as higher demand amid the pre-Christmas stock-building period. As such, in light of persistently weak manufacturing activity, the Q3 15 GDP growth forecast is lower to -0.6% y/y (from 0.3%) and full-year forecast to 1.0% y/y (from 1.4% y/y), estimates Barclays.

The persistent softness in inflation, as well as a deteriorating macro outlook amid rising external uncertainty, prompted the CBC to cut its policy rate 12.5bp on 24 September. The CBC is expected to keep its benchmark interest rate unchanged at its December meeting, a small probability of further easing is seen if Q3 GDP growth (released on 30 October) is lower-than-expected, thereby increasing the risk of full-year growth being below 1.0% y/y for 2015, says Barclays.