CBC likely to stay pat in 2019, Taiwanese government bond yield likely to remain in range of 0.8-1.0 pct: ANZ Research

The Central Bank of the Republic of China (Taiwan) (CBC) is expected to stay pat during the course of next year, keeping the policy rate unchanged at 1.375 percent, according to the latest report from ANZ Research.

At the latest monetary policy meeting in September, the central bank expressed little intention of changing its policy rate in the near term, citing still moderate inflation and external uncertainties.

Further, at the post-meeting press conference, Governor Yang Chin-Long appeared to be comfortable with the current monetary policy stance. With the US Fed policy rate profile set to become less hawkish next year, there is little incentive for the CBC to tighten monetary policy.

The bank will likely maintain a wide range of 2.5-6.5 percent for its M2 target, compared with 3.0 percent in October, the report added.

In addition, a low rate of inflation will continue to support a low interest rate in the year ahead. The one-year lending rate will likely be set at 1.04 percent. As we see little upward pressure on 10-year US Treasury yields in 2019, the yield for Taiwan’s government bond will likely remain in the range of 0.8-1.0 percent.

"Although the US-China trade truce may provide a reprieve, there has yet to be a permanent resolution. We are more constructive in TWD in H2 2019. By then, the global supply chain could have adjusted to the US-China trade tariffs. We expect USD/TWD to end 2019 at 30.4," ANZ Research commented in the report.