Taiwan CBC unlikely to hike rates

Taiwan's rate normalization will probably lag the Federal Reserve's move if the domestic inflation outlook remains modest. As the CBC sees 2015 inflation at 0.1% yoy, lower than average inflation in the past five years, the CBC as unlikely to hike this year.

Before actually hiking the discount rate, the CBC might prefer to guide overnight rates higher first and then raise reserve ratios amid modest growth and mild inflation in the next few quarters. 

Despite the recent increase in negotiable certificate of deposit (NCD) issuance to drain excess liquidity, the stable and low overnight rates at 0.388% suggest the CBC has no intention to tighten its monetary policy stance yet.

On the other hand, the CBC will likely not cut rates because it views the recent decline in consumer prices as short-term. The negative contribution of oil prices to headline inflation may continue for a few more months, before picking up from August onward, says Bank of America.