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Emerging Asia

Indonesia

Asia late to tightening but won’t have to go far

Central banks in India, the Philippines and Malaysia have all raised interest rates for the first time this cycle in recent weeks, and we expect further hikes next week in Indonesia, Korea and Pakistan. But with inflation set to fall back in the second half of the year and growth likely to weaken, tightening cycles are unlikely to be aggressive. Our forecasts are generally more dovish than the consensus.
Asia Drop-In (26th May, 0900 BST/16:00 SGT): Can Asia remain the low inflation exception? Join our 20-minute briefing about the region’s price and policy outlooks. Register here.

20 May 2022

Indonesia GDP (Q1)

Growth slowed in Q1 as Omicron held back the recovery at the start of the quarter. Activity is rebounding now that the economy has reopened, but other headwinds are growing. China Drop-In (12th May, 09:00 BST/16:00 SGT): Join our China and Markets economists for a 20-minute discussion about near to long-term economic challenges, from zero-COVID disruptions to US-China decoupling. Register now.

9 May 2022

Not just Indonesia export ban boosting palm oil prices

We expect Indonesia’s latest ban on palm oil exports to be short-lived, but constrained supply and the high prices of other edible oils, coupled with elevated oil prices, will support the price of palm oil. We’ve revised up our palm oil price forecast to MYR 5,000 per tonne (MYR 4,025 previously) at end-2022.

5 May 2022
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Tightening cycles to be gradual

Central banks across the region have recently turned more hawkish. Over the past month or so, policymakers in Korea, Taiwan, Singapore, Sri Lanka, India and Pakistan have all tightened policy. Governor Benjamin Diokno in the Philippines has also hinted that the central bank there will raise interest rates soon, and we have adjusted our interest rate forecast. We now expect the BSP to hike rates by 50bps this year. The main concern in most places is inflation, which is now above target in around half of the countries covered by our Emerging Asia services. However, while headline rates have increased in recent months, inflation across the region remains much lower than elsewhere in the world. And unlike in other parts of the global economy, we expect inflation in Asia to drop back to target by the end of the year as base effects become more favourable. This supports our view that tightening cycles will be relatively gradual compared with other regions. Our interest rate forecasts are more dovish than the consensus and what is being priced in by financial markets. EM Drop-In (5th May, 10:00 EDT/15:00 BST): Join Shilan Shah for our latest monthly session on the big macro and markets stories in EMs. This month, Shilan and the team will be talking Russian gas, FX weakness and surging food prices. Register now

Indonesia palm oil ban

Indonesia has caused turmoil in global commodity markets over the past week with its decision to ban exports of palm oil. However, given the importance of the sector to Indonesia’s economy and the country’s limited storage capacity, we suspect the ban will prove short lived and the impact on growth will be small. EM Drop-In (5th May, 10:00 EDT/15:00 BST): Join Shilan Shah for our latest monthly session on the big macro and markets stories in EMs. This month, Shilan and the team will be talking Russian gas, FX weakness and surging food prices. Register now

New headwinds emerge

Our GDP growth forecasts are generally above the consensus, but with higher commodity prices and weaker global demand set to weigh on economic recoveries, growth across much of Emerging Asia will be slower than we had anticipated in our last Outlook. Most central banks in the region are likely to raise interest rates this year – the exceptions are parts of South East Asia and China (where we expect a rate cut). However, with growth set to slow and inflation relatively subdued, Asian central banks will tighten policy less aggressively than those elsewhere, and our interest rate forecasts are more dovish than most.

Bank Indonesia to tighten gradually

Bank Indonesia left its main policy rate unchanged at 3.5% at its meeting today, and the relatively benign outlook for inflation means the tightening cycle is likely to be very gradual.

Manufacturing PMIs, Korea Trade (Mar.)

While Korean trade data show exports remained buoyant, regional Manufacturing PMIs point to lost momentum. With headwinds to export-focussed industry mounting, there are tougher times ahead.

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