Taiwan Central Bank Chief: Never Said Inflation Cannot Remain Above 2%; Level Is Just a Benchmark

The Central Bank of the Republic of China (Taiwan) governor stated that he never asserted inflation could not remain above 2%, characterizing the 2% figure as a benchmark rather than a firm ceiling. The clarification signals that policymakers may tolerate inflation running somewhat above target without necessarily triggering a tightening response, which bears on the rate differential between Taiwan and trading partners and on expectations for the New Taiwan dollar. A more tolerant reaction function tends to weigh on the currency by reducing the carry advantage of holding TWD-denominated assets, while also affecting Taiwan government bond yields, which reprice along the front end of the curve as hike expectations are pared. Taiwan's equity market, heavily weighted toward export-oriented semiconductor and electronics names, is more sensitive to currency moves and global demand than to domestic rate expectations, so the effect there is likely to run through the exchange rate. The next catalyst traders will watch is Taiwan's monthly consumer price index release, which will show whether inflation is trending above the benchmark and test the credibility of the central bank's flexibility

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