Taiwan's central bank looks increasingly.....>

TAIWAN: Taiwan's central bank looks increasingly likely to sift towards tighter

monetary policy over the coming months following the sharp jump in price

pressures seen in April. Headline CPI rose by 1.98% y/y from 1.57% in March,

while WPI rose by 2.53 y/y vs 0.46% in March.

- The central bank last hiked rates in 2011 but minutes from its March 22

meeting which were released on May 4 showed that policymakers will consider

hiking if the rate rises above 2.0%, which is looking likely to arrive sooner

rather than later.

- The ongoing rise in energy prices is providing the main source of inflationary

pressures, and although there is little threat of inflation rising out of

control, policymakers are unlikely to want to preside over deeply negative real

interest rates.

- The ongoing widening of interest rate spreads between Taiwan and the U.S.

provide additional reason to expect the central bank to shift to a more hawkish

stance in the near term, particularly as the TWD has begun to weaken.