Interest-rate cuts back in play for Asian emerging economies

MUMBAI • Central banks in Asian emerging markets are turning cautious and some appear set to dump their hawkish policy stances.

Inflation is subdued, currencies have rebounded and the US Federal Reserve (Fed) has shifted to a pause in its tightening cycle. That gives Asian developing nations from India to Indonesia a chance to put a brake on interest-rate hikes and possibly start signalling cuts.

Of the three Asian policy decisions this week, Thailand held rates yesterday and between the Philippines and India, the latter is the closest to a possible rate reduction. Of the 38 economists surveyed by Bloomberg as of yesterday afternoon, eight see the Reserve Bank of India (RBI) lowering the benchmark rate today.

The Philippines is expected to dial back much of the hawkish commentary of last year and follow Thailand’s example of standing pat. In Indonesia, where data yesterday showed a resilient economy, the central bank has said the benchmark rate is close to its peak. Bank Indonesia’s next policy decision is due on Feb 21.

“With the Fed changing track and growing signs of slowing demand side pressures, drivers of monetary policy in Asia have definitely shifted,” said Priyanka Kishore, head of India and South-East Asia economics at Oxford Economics Ltd in Singapore. “A cut is now increasingly likely in India in the first half and an extended pause elsewhere in the region like in Thailand and the Philippines.”

Here’s the takeaway from Thailand, and what to watch for at the other rate meetings:


Policymakers in South-East Asia’s second-largest economy, whose first interest-rate hike in seven years in December was also the last increase in the region in 2018, cited financial stability risks as a reason to remain cautious.

Inflation quickening at the slowest pace in 18 months in January and the currency gaining more than 4% against the dollar gave policymakers room to pause and hold the benchmark interest rate unchanged at 1.75%.

An accommodative monetary policy would remain appropriate in the period ahead, the central bank said, as it continues to monitor economic growth, inflation and financial stability.


Shaktikanta Das, the new governor, will chair his first monetary policy committee meeting this week after being hastily installed in December to replace Urjit Patel, who resigned following attacks on the central bank’s autonomy. Das, a career bureaucrat, is seen as more dovish than his predecessor and more willing to support the government’s efforts to spur the economy through policy easing.

Inflation at an 18-month low of 2.2% and high-frequency indicators showing demand in the economy slowing are strong arguments for the RBI to move away from its hawkish bias.

But last week’s expansionary interim budget, in which the government gave almost US$13 billion (RM53.3 billion) in tax cuts and cash handouts to citizens, could prove to be inflationary. And core inflation — which strips out the volatile categories of food and fuel — remains stubbornly elevated, while the cost of oil, India’s biggest import, is again rising.

“We expect a change in stance to neutral but no change in rates in the February policy meeting,” said Pranjul Bhandari, chief India economist at HSBC Holdings plc in Mumbai. “Thereafter we expect a prolonged pause, compared to our previous expectation of one rate hike in 2019.”

The Philippines

Bangko Sentral ng Pilipinas (BSP) is betting big that inflation will continue to slide after breaching the 2% to 4% target last year, easing pressure for further rate hikes. All 21 economists surveyed by Bloomberg predict the central bank will keep its policy rate at 4.75%.

That doesn’t mean policymakers are in any rush to cut yet. Central bank deputy governor Diwa Guinigundo has said inflation remains above the target and a quick reversal of last year’s tightening would be “bad economic and monetary policy.”

The benchmark rate was raised by a total of 175 basis points last year, making the BSP one of the most aggressive central banks in Asia. — Bloomberg