Taiwan CBC: Dovish surprise

Barclays reviews the CBC's communications at the September meeting, arguing that its "dovish surprise" still leaves questions on the monetary policy framework. The CBC assesses policy as tight because M2 growth is falling short of nominal GDP growth, and emphasizes the quantity of money and uneven income distribution. However, with the ex-post real policy rate negative given the latest inflation reading and continued upside surprises in GDP growth and the inflation outlook, this "tight" assessment conflicts with conventional wisdom. Barclays argues the gap between M2 and nominal GDP growth (or real GDP growth plus CPI inflation) is more a money velocity issue driven by strong exports and the import-intensive investment boom, rather than a monetary policy indicator;