Asia - High inflation derails central bank plans (May 08)

Inflation has re-emerged as a unifying theme across many Asian economies in recent weeks. Driven by the continuing high international oil and food prices, persistent upside surprises to inflation have forced a rethinking of monetary policy in the region. Meanwhile, early data indicate that domestic demand held up surprisingly well in the first quarter, clearing the way for central banks to focus on the inflation threat. Indonesia has embarked on a modest tightening cycle, beginning with a 25bp hike announced on 6th May. The Philippines could be next to follow. Finally, the central banks in Malaysia and Thailand are also now emphasising inflation risks, suggesting that rates there will remain on hold for longer than we initially expected.