Asian monetary policy: A brief pause in 4Q19; easing to resume in 1H20

Highlights from the CAA Weekly Table

What has changed?

• Global economy up but not much immediate good for Asia: There is more evidence of a pickup in the global economy but the positive spillovers to Asia will not materialise immediately: Tentative signs of a bottoming in the global tech cycle have emerged while a modest recovery is unfolding in China. However, it will take time for business confidence to recover to the point where import demand from the advanced economies accelerates. Also, Asian central banks now have less policy space.
• Asian political risks: Xi Jinping came out of his party’s Fourth Plenum stronger but not infallible. The risk-averse President is likely to double down on repression in both China and Hong Kong. In Indonesia, the re-alignment of ministries under the 4 coordinating ministries, appointment of several capable deputy ministers as well as tantalising signs of bureaucratic reforms show President Jokowi’s commitment to vigorously streamline policymaking.
• Asian economies: India withheld its endorsement of RCEP after encountering strong domestic opposition which fears a deluge of Chinese imports – but an agreement still seems likely by Feb 20. A substantial upturn in Taiwan’s economy is likely to be sustained as reshoring adds a tailwind to its export engine. We are more positive than others on the Singapore economy which is set to turn a corner this quarter as sentiment improves in even its most battered sectors. The Thai economy is climbing out of its trough: we see a return of private investment in 2H20 adding lustre to the medium-term outlook. In the Philippines, buoyant credit growth and a surge in government spending likely paved the way for a rebound in GDP growth above 6% last quarter. Foreign investment realisation finally sprang back into the black in Indonesia in 3Q19, after declining for 5 successive quarters but manufacturing investments remained desultory, strengthening the case for structural reforms to improve competitiveness.

Asian monetary policy: A brief pause in 4Q19; easing to resume in 1H20:

A pause in rate cuts by the US Fed translates to less policy space for Asian central banks in the near-term.

• With the notable exception of India, which is poised to lower rates again in Dec 19, all signs are pointing to a pause in the region’s easing cycle before rate cuts resume in 1H20.
• China is likely to enact a 25 bps cut in reserve requirements in 1H20 to safeguard the nascent recovery that is now taking hold. Both South Korea and Taiwan should keep rates on hold from here on amid signs of the global economy bottoming out.
• We expect no further easing from Singapore’s central bank: it will wait to assess the impact of October’s easing. An improving economic outlook could herald the start of an extended lull in easing as the conservative Bank of Thailand grapples with financial stability risks.

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