Commerzbank’s report on Taiwan noted that stronger inflation, with core CPI at 2.5%, is likely to push the CBC towards a more hawkish stance, including a possible 12.5 basis point hike in the second half of the year. Despite powerful AI-driven exports and powerful domestic demand, USD/TWD rose to 32.19, although analysts expect a potential pullback once seasonal dividend outflows expire.

Hawkish growth based on CBC and artificial intelligence

“Taiwan’s June inflation surprised on the upside, with headline CPI rising to 2.6% year-on-year from 2.2% in May. This was the fastest pace since January 2025 and well above the informal 2% threshold set by the Central Bank of the Republic of China (CBC). Higher fuel, gas and electricity costs were the main drivers, but service sector inflation remained unchanged at 2.9% compared to 2.5% previously.”

“While lower oil prices should support curb headline inflation in the coming months, a rise in core inflation will be a concern for the CBC. This strengthens the case for the CBC to become more hawkish. The last rate boost was 12.5 bps to 2% in March 2024 and has maintained it since then. We can expect a 12.5 bps boost in the second half of this year. A combination of AI-led income growth, powerful domestic demand and persistent services inflation gives the CBC less ability to review short-lived energy-induced price pressures.”

“Despite strong economic performance, TWD remains in the red and the USD/TWD exchange rate has returned to its highest values ​​this year. Seasonal net dividend outflows have weighed on TWD, but as this abates, we could see the USD/TWD exchange rate decline.”

(This article was created with the support of an artificial intelligence tool and has been reviewed by an editor. Find out more.)