Taiwan CBC likely to stay on hold in September

Taiwan inflation is expected to recover gradually in H2, helped by a low base in Q4. Food prices are also likely to trend higher due to the typhoon season. Soft CPI should not be a concern to CBC, given it is mainly supply-side driven. 

"The CBC will stay on hold at its meeting on 24 September, though there are increasing risks to this view, especially if high-frequency data deteriorate further. As a signal that it is doing more to support growth, the CBC guided its overnight rate 6.5bp lower, to 0.32%, between 11 August and 7 September, roughly the equivalent transmission of two 12.5bp rate cuts", says Barclays. 

Since China's CNY devaluation on 11 August, the TWD has depreciated 3.6%, in line with the movement of other EM Asian currencies. The CBC will likely maintain excess liquidity at a slightly higher range in the coming months. 

"Beyond that, the CBC will defer to the government stimulus program that was announced on 27 July. Indeed, the CBC has continued to call for the government to do more in terms of expansionary fiscal policy. Given the weaker growth outturns, the CBC's first rate hike of 12.5bp is expected to happen in June 2016", added Barclays.