Taiwan Dollar: CBC intervention and inflation risks – Commerzbank
Commerzbank strategists note that Taiwan’s October CPI eased to 2.33% year-on-year, below expectations but still above the Central Bank of the Republic of China’s (CBC) 2% alert threshold. Meanwhile, PPI surged 19.7%, raising concerns over future consumer price pressures.
Commerzbank analysts have noted that Taiwan's October Consumer Price Index (CPI) fell to 2.33% year-on-year, which was below expectations but remained above the Central Bank of the Republic of China's (CBC) 2% alert level. Producer Price Index (PPI) data showed a surge of 19.7% year-on-year, raising worries about potential future consumer price pressures.
In response to significant foreign equity outflows, the CBC intervened in the Taiwan Dollar (TWD) foreign exchange market. Foreign exchange reserves dropped to USD596.4 billion at the end of October, while the CBC confirmed a net foreign outflow of around USD28 billion for the month. The CBC used proceeds from the swap market to purchase US Treasuries, which helped limit the decrease in reserves.
While the softer CPI print offers near-term relief on inflation, the ongoing issue is the stark disconnect between softening consumer prices and surging upstream costs, potentially leading to pass-through to final consumer prices in the months ahead.
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