Asian monetary policy: Policy rates have troughed

Conventional policy

Unconventional policy

• No change to key policy rates, the Loan Prime Rate (LPR) and the 7-day repo rate at this juncture.

• Continued use of non-interest rate tools such as window guidance to spur lending to small firms.

• RBI to raise rates at end-2021 if recovery pans out

• RBI not inclined toward unconventional Policy

• Rate hike likely in 2Q21 if downward pressure on Rupiah intensifies
• Only macroprudential easing still on the table

• BI still a standby buyer of G-sec in 2021, but policy continuity in 2022 unlikely
• Mooted changes to BI’s mandate bear watching

2020: 0.5%

• Policy rate on hold until 2023; tourism accounts for most of the remaining gap between output and its pre-COVID trend, but a recovery is pushed out to 2022.

• BOT more likely to use yield curve control and/or forward guidance should downside risks materialise.

2021e: 0.5%

• Policy normalisation only from Apr 22 on account of a closing output gap and firming core inflation.

• MAS is unlikely to enact unconventional policy.

• Policy rates have hit bottom, unlikely to budge anytime soon in either direction.

• BNM is wary of unintended side-effects of un-conventional policy

• Expect monetary normalisation around early-2023 with the economic recovery in abeyance

• Uncontroversial nature of deficit financing vis-à-vis debt monetisation means the govt likely to call upon the BSP in future crises.