Deutsche Bank-Asia Economic Notes CBC charting its own path-107208163

DeutscheBankEconomicsDateResearch25March2024AsiaEconomicAsiaNotesTaiwanCBCchartingitsownpathAdovishhike,butthedoorleftslightlyajarformorehikesJulianaLeeChiefEconomistWhilewewereexpectingittostrikeahawkishtone,aswarnedinourreport,we+65-6423-5203thoughtitwouldconcludeitsstudyon"structuralchangeininflation"beforeresumingratehikes.GovernorYangunderlined"limitedupsideforratesinfuture",renderingtheCBC'slatestratehikeasadovishone.Moreimportantly,henotedthatthepolicyratesare"nowatanappropriatelevel"andthattheCBC"won'tkeephikingrateswheneverCPIisover2%",especiallyasitexpectsinflationto"graduallyfall".AlthoughtheCBCraisedits2024headlineandcoreinflationforecastsby0.27pptsand0.2pptsto2.16%and2.03%,respectively,asitassumeda10%hikeinelectricityprices,thefigureswouldfallbelowlastyear'sheadlineandcoreinflationof2.49%and2.59%,respectively.Distributedon:25/03/202408:15:05GMTThatsaid,theriskoffurtherratehikesremainsnon-negligible,givenongoingconcernsabouta"structuralchangeininflation".ByFebruarythisyear,Taiwan'sfive-yearheadlineinflationhadrisento1.57%from0.77%inFebruary2020.Infact,bothheadlineandcoreinflationstoodrelativelyhigh,at2.24%yoyand2.28%yoy,respectively,inthefirsttwomonthsofthisyear,withservicesinflation(2.6%)leadingthatofgoods(2.2%)(Figure19).Likeinadvancedeconomies,Taiwan'slabour-marketconditionshavetightened,withth...