Rising US-China trade tensions, fears over the outlook for China’s domestic economy and the uncertain outlook over US monetary policy have all weighed heavily on the region’s financial markets over the past month. The biggest falls have been in China, but Korea, Indonesia, the Philippines and Thailand, have also been hit hard. There are signs that policymakers are becoming increasingly nervous. The central banks of the Philippines, India and Indonesia have all hiked interest rates in recent weeks, citing in part the need to support their currencies. With worries about protectionism unlikely to disappear any time soon and uncertainty over the outlook for US monetary policy set to persist, further volatility in the region’s financial markets seem likely. Against such a backdrop, central banks are likely to remain on edge. We expect further hikes in the Philippines, Indonesia and India over the next few months.
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