Central Bank of Taiwan likely to stay pat at the Q2 policy meeting by month-end, says DBS Bank

The Central Bank of the Republic of China (Taiwan) (CBC) is expected to stay pat at its second-quarter monetary policy meeting, scheduled to be held by the end of this month. The overall inflation picture remains benign, despite the market talk about wage/price hikes following the government’s implementation of a new workweek rule at the start of this year. From this point of view, there should be little pressure on the central bank to raise interest rates

CPI inflation ticked up to 0.6 percent y/y in May from 0.1 percent in April, but still lower than the Q1 average of 0.8 percent. The decline in food prices has come to a pause, along with the favourable weather effects dissipated. Meanwhile, the miscellaneous services items saw a price increase last month, which could be ascribed to the seasonal effects caused by the early arrival of the Dragon Boat Festival.

Food and oil prices will remain the biggest influence factors for CPI numbers in the months ahead. A rebound in food prices appears to be underway, given the heavy rains in early-June and the upcoming typhoon season this summer. But oil prices (Brent) have been weak and fluctuating around US$ 52/barrel in the last few months.

"Our forecast of 1.2 percent inflation in 2017 has assumed that oil prices will average USD 55/barrel and food prices will remain stable compared to last years. For the time being, risks are skewed to the downside," DBS Bank commented in its latest research report.