Taiwan CBC likely to keep benchmark rates unchanged

In today's statement, the CBC pointed out that with inflation in negative territory, real interest rates in Taiwan were still relatively high, an indication to us that the bank can still ease (towards the post-Lehman low of 1.25%) if necessary. 

"The CBC is expected to keep its benchmark interest rate unchanged throughout the rest of the year, though there are increasing risks of policy easing in December, if incoming data continue to disappoint, or fail to bottom out", says Barclays. 

That said, there are still no indications that it intends to engineer a sharply weaker currency bias. While it flagged that the exchange rate should be market determined, it also pointed out that the TWD REER was already below that of Singapore and Korea. 

"CBC is likely to maintain excess liquidity at a slightly higher range in the coming months. In view of today's unexpected easing, rate normalisation of 12.5bp is forecasted further - by another two quarters to December 2016", added Barclays.