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Emerging Asia

Philippines

Singapore overheating fears, BSP forecast change

There are growing signs that Singapore’s economy is overheating, with inflation now nearly double the target and wages increasing rapidly. However, we do not expect the MAS to respond by tightening monetary policy further. We expect growth to slow in the second half of the year, which should help to cool underlying price pressures, while a reopening of the international border should help to ease labour shortages. Asia Drop-In (30th June, 09:00 BST/16:00 SGT): Are Asia’s central banks behind the curve? Can the Bank of Japan and People’s Bank of China continue to go against the grain? Find out in our special session on what global monetary tightening looks like in Asia. Register now.  

24 June 2022

New rate forecasts following hawkish BSP comments

The central bank in the Philippines today raised its policy rate by another 25bp (to 2.5%), and signalled that further tightening was likely. However, with inflation set to peak soon and headwinds to the recovery mounting, we think the tightening cycle will be gradual. Asia Drop-In (30th June, 09:00 BST/16:00 SGT): Are Asia’s central banks behind the curve? Can the Bank of Japan and People’s Bank of China continue to go against the grain? Find out in our special session on what global monetary tightening looks like in Asia. Register now.  

23 June 2022

BoT to stay on the sidelines, Korea inflation concerns

Despite above-target inflation, we expect the Bank of Thailand to leave interest rates unchanged, not only at its meeting on Wednesday, but throughout 2022, as it prioritises supporting the economic recovery. Meanwhile, inflation is becoming a growing concern in Korea, amid further signs that underlying price pressures are starting to build. We expect more tightening by the Bank of Korea over the coming months. India Drop-In (8th June, 10:00 ET/15:00 BST): We’ll be discussing India’s growth, inflation and policy outlook in the wake of the RBI’s June meeting, including what to do about the rupee. Register now. We are sending this Weekly one day earlier than usual because Capital Economics’ London office is closed on 2nd-3rd June for the Queen’s Platinum Jubilee celebrations.

2 June 2022
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Manufacturing PMIs, Korea Trade (May)

Manufacturing PMIs for May suggest that cost pressures remain high, but there were more encouraging signs on the external front, with new export orders showing signs of stabilising. Meanwhile, Korean trade data point to an easing of the disruption from China.

Pakistan edges closer to IMF deal

Talks between Pakistan and the IMF ended last week without agreement, but the subsequent decision by the government to cut back fuel subsidies has cleared one of the major hurdles towards a deal being agreed. Financial markets in the country reacted well to the news, with equities and the currency climbing and CDS spreads falling back. As we have outlined before, an IMF deal is essential to putting the economy back on a more sustainable footing, but there is still a lot that could go wrong. Cutting subsidies will cause inflation, which hit 13.4% y/y in April (which is more than double the central bank’s target), to climb even higher. In addition to cutting back on spending, the IMF are likely to demand monetary policy is tightened further. All of this will weigh on living standards and could prompt renewed political unrest. The recently deposed prime minister, Imran Khan, has threatened to hold renewed protest rallies, while there is a mounting risk that some parties could start to pull out of the governing coalition, which may lead to early elections. The IMF will be wary of entering into an agreement if they think the government will not be around for long enough to complete the programme.

Singapore inflation worries, BBM taking the right steps

Rising inflation and a strong economy have fuelled talk that monetary policy in Singapore will need to be tightened further. But we think the backdrop will have changed by the time the Monetary Authority of Singapore (MAS) next meets in October. Our forecast is that monetary settings will remain on hold for the rest of this year. Meanwhile, in the Philippines, Benjamin Diokno (the current central bank governor), has been appointed as the new financial secretary. The announcement of an experienced technocrat in a key position should help ease the concerns of investors, who have been unnerved by the election of Ferdinand “Bongbong” Marcos Jr. as the country’s new president.

Philippines: central bank will tighten gradually

The central bank in the Philippines (BSP) started raising interest rates today, but with inflation set to slow later in the year and the economic recovery likely to weaken, the tightening cycle is set to be gradual and relatively short. 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.

What next for the recovery? Politics takes centre stage

Despite a surge in virus cases at the start of the year, most countries recorded decent growth in the first quarter. We expect recoveries to continue over the coming months on the back of an easing of virus restrictions and a reopening of international borders. However, new headwinds are starting to emerge. There are already signs that higher oil prices are weighing on consumer sentiment, while there are also indications that exports are losing momentum.
Emerging Asia Drop-In (26th May): Can Emerging Asia remain the global low inflation exception? Economists from our Emerging Asia team will discuss the region’s growth, inflation and policy outlooks in this special 20-minute online briefing. Register now.

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