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The USD/TWD currency pair is expected to stay below 32.0 through to December 2018. As the surge of global commodity price begins to lose steam, import price pressure will wane. An interest rate hike will also attract more capital inflows and potentially drag Taiwan into another period of WPI deflation. However, the CBC will attempt to avoid that.
Meanwhile, Taiwan’s government remains cautious towards the economic outlook. Despite an export growth as high as 15.1 percent y/y in Q1, the official forecast of 2017’s GDP was lifted by a tiny margin from 1.92 percent to 2.05 percent, implying a slowdown of growth momentum from Q1’s 2.6 percent y/y to Q4’s 1.66 percent. CPI is projected to rise by 0.95 percent in 2017 and May’s 0.59 percent y/y, released today, has not come close to the target with Q4’s CPI projected to be negative (-0.67 percent).
"We believe the CBC can decouple from a potential Fed’s hike in both 2017 and 2018 and the central bank will regard a rediscount rate of 1.375 percent a comfortable level for now (previously we call for a hike of 0.125 percent from June onward)," ANZ Research commented in its latest report.
