The Malaysian Reserve

Rate hikes in store for SE Asia’s 2 big economies

Light trails from boats pass commercial and residential buildings on the Chao Phraya river in Bangkok, Thailand, on Saturday, Feb. 13, 2016. *** SECOND SENTENCE HERE *** Photographer: Brent Lewin/Bloomberg

By BLOOMBERG

JAKARTA • The outlook for interest rates in South-East Asia’s two biggest economies is upward even after mixed inflation data yesterday.

In Thailand, rising food and energy costs boosted inflation to 1.6% in August, the highest in almost four years, adding to the case for the Bank of Thailand (BoT) to deliver its first rate hike since 2011. The policy rate of 1.5% is now below inflation, making the economy only the second one in South-East Asia, alongside the Philippines, to have a negative real interest rate.

Separately, data showed consumer-price growth in Indonesia was little changed at 3.2% last month. While that’s well within Bank Indonesia’s (BI) 2.5%-4.5% target band and should offer some respite to policymakers, the rupiah’s slide to a two-decade low against the dollar will put pressure on the central bank to hike rates for a fifth time this year.

Nomura Holdings Inc economist Euben Paracuelles sees both central banks hiking rates this year. Inflation isn’t the “main driver of BI’s policy decisions at the moment” and the subdued figures don’t change his forecast of another increase at the September policy meeting, he said.

Nomura’s base case is also for a 25 basis-point increase in the BoT’s policy rate on Sept 19, although recent comments from governor Veerathai Santiprabhob have lowered the probability. Veerathai said the central bank doesn’t face immediate pressure to tighten monetary policy like other emerging-market peers.