Asian Monetary Policy: On the cusp of more aggressive tightening

Asian Monetary Policy: On the cusp of more aggressive tightening

  • The Fed’s aggressive tightening will spur regional central banks to tighten as well. Inflation is rising with the closing of output gaps, tightening labour markets, supply-side disruptions and elevated food and energy prices, as illustrated in the heatmap table below:


  • Governments have come under pressure to respond to the runaway prices, at the expense of public balance sheets, through a mix of cash transfers, fuel tax cuts/subsidies, food aid and food price controls.
  • Monetary policy guidance has turned more explicit, with palpable upside risk to rates in the Philippines, Korea and India. Holdouts that span the likes of Bank Indonesia and Bank of Thailand are likely to move soon with inflation on the ascendancy.

Hong Kong’s next 25 years: a great global hub with Chinese characteristics

  • Hong Kong’s standing as a great global heart of commerce and finance has taken a knock as a result of China’s tightening grip on it. There is a risk that its unique positioning that enabled it to act as a bridge between China and the world could weaken, that talent may leave and that governance standards that are vital to its eminent position be undermined.
  • So far, the record suggests that the diminution of these fundamentals has not gone so far as to cause the critical mass of interdependent activities that define Hong Kong as a global hub to dissipate. Moreover, China is stepping up efforts to provide it with a new engine of growth in the form of the Greater Bay Area.
  • The net effect – it remains a global hub of towering importance but its character will change as it becomes more integrated with China.

What has changed recently:

  • US-China relations are moving into a new phase: A Biden-Xi call is likely to take place soon and could pave the way for an in-person meeting in November. This reduces risks of unintended clashes but will not change the highly competitive nature of the relationship.
  • Malaysia is set for a strong showing in 2Q22, thanks to remarkably strong external demand from electronics and machineries and the drawdown of excess savings.
  • Animal spirits have returned to the Philippines as another tranche of indicators point to an economy in fine fettle.