Central banks remain in hawkish mode, for now

Monetary policy makers across Emerging Asia remain in hawkish mode – every central bank in the region with the exceptions of China and Vietnam has now raised interest rates this year – and further hikes are likely over the next couple of months. However, we think tightening cycles are likely to come to an end in most places around the turn of the year, which is earlier than what other analysts are expecting. Growth slowed across the region in the second quarter, and further weakness is likely over the coming months as high commodity prices, weaker global demand and policy tightening weigh on demand. Meanwhile, inflation is showing signs of peaking. The headline rate fell in several countries in August, and further declines are likely over the coming months as fuel price inflation eases. And although core inflation has generally continued to rise, underlying price pressures should start to ease as growth slows. We think the central banks of Korea and the Philippines – which have been among the most aggressive in raising rates – are likely to call an end to their hiking cycles later this year. Most others will stop raising interest rates in early 2023.