Taiwan Dollar: Equity Flows Weigh as CBC Holds Steady – MUFG

Persistent Taiwan Dollar (TWD) weakness could tilt policy risks higher, although the CBC is expected to hold its policy rate at 2.00% in December. MUFG notes that Taiwan’s headline inflation moderated to 2.33% year-on-year in October, while core inflation stood at 2.23%, leaving both above the 2% alert level. With TWD behaving more like a high-beta currency driven by semiconductors and equity flows, officials have called on exporters and banks to facilitate US Dollar conversion.

Can policy remain steady amid TWD’s high-beta behaviour?

"Recently, TWD has been behaved like a high-beta semiconductor and equity-flow currency, rather than a conventional strong current account driven Asian currency."

"Meanwhile, Taiwan’s headline inflation eased to 2.33%yoy in October from 2.74%, while core inflation moderated to 2.23%yoy."

"Despite both measures remaining above 2% alert level, we expect the CBC to keep its policy rate unchanged at 2.00% in December, though a persistent TWD weakness may increase the upside risk at the margin."

"Yesterday, the CBC officials encouraged the exporters to convert their US dollar proceeds whenever the conditions are favourable and also urged the banks to fulfill exporters’ US dollar conversion needs."

"With a Democratic sweep, we could expect a lower US yield tail risk, which should provide some support for semiconductor valuations and Taiwan equities."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Learn more.)