Taking stock of monetary policy in asia

Taking stock of monetary policy in asia

  • Central banks in Asia have mostly called a pause to monetary tightening due to easing headline inflation, but sticky core inflation is a risk even as growth headwinds mount.
  • Some central banks will continue to keep rates “higher for longer” to provide support for their respective currencies, or to minimize volatility in capital flows.
  • We discuss the trajectories for monetary policy in selected Asian economies, including how they may differ from theoretical Taylor-Rule prescriptions for policy rates.

Asian currencies remain stable but china-led upsides are limited

  • Most Asian currencies have managed to make modest gains against the US dollar, although occasional spikes of haven demand have punctuated this progress.
  • The imminent pause by the US Fed and Asian central banks means that monetary policy and the resultant rate differentials will play less of a factor in currency performance.
  • Hoped-for upsides from China, however, are not forthcoming given the faltering recovery. This also manifests in softer commodity markets that compound a broader trade slump.
  • Asian markets have nonetheless been able to improve their currency fundamentals, notably via a replenishment of reserves and more substantial progress in disinflation.

Regional updates

  • China’s policymakers continue to roll out small-scale stimulus to prop up the economy, but these are unlikely to compensate for the damage inflicted during the pandemic years.
  • Malaysia’s industrial production weakened due to sluggish manufacturing.
  • UMNO’s leadership continues to be enthusiastic advocates for Anwar Ibrahim’s coalition government, in stark contrast with still-lukewarm attitudes among the party grassroots.
  • Taiwan’s central bank hit pause on monetary tightening; the worsened growth outlook means that policy rates are likely to remain unchanged for the rest of the year.
  • Indonesia’s constitutional court upheld the existing voting system, but charges against an opposition-aligned minister raise concerns of institutional degradation.
  • India’s disinflationary progress maintains its convincing momentum.

Read more: CAA-Weekly-19-june-2023.pdf