South Asian central banks join bullish cycle – 2022-05-16 11:41

Amundi’s market weekly

Inflation, falling stock markets, publication of company results… what to remember from the news this week.

Against all odds, Bank Negara Malaysia (BNM) last week raised its overnight rate by 25 basis points (bp) to 2.0%, a first since the pandemic, when it l had reduced by 125bp to bring it back to the historic low of 1.75%. The BNM believes that the conditions that justified this exceptionally low level have disappeared. It should be noted that the figures for headline inflation and underlying inflation remain moderate (respectively 2.2% and 2.0% year-on-year in March). Price controls and spare capacity help contain inflation prospects. This decision by the BNM, which indicates that a movement to normalize the monetary policies of the central banks of Southeast Asia has finally begun, comes a week after the interim meeting during which the Reserve Bank of India (RBI) had decided to hike rates by 40 bp (to bring them to 4.40%).

Two powerful catalysts are indeed beginning to gain importance in the region: domestic conditions (normalization of growth momentum since the beginning of the reopening of economies in the second half of last year and rising inflation) as well as than the tightening of global financial conditions. For these countries, the monetary policy stance is given and the above two determinants dictate the start and pace of the cycle.

The region had so far lagged behind the inflationary trend, under the effect of price controls and more moderate demand dynamics, but the situation is changing. There are thus clear signs of a surge in inflation in India, Thailand or the Philippines (respectively 7.8%, 4.6% and 4.9% year-on-year), while in Indonesia and Malaysia l inflation will slowly pick up (3.5% and 2.2% year-on-year) while remaining within the limits of the central banks’ target.
The strongest tightening cycle is expected in India, where an increase of almost 200 basis points is expected within a year, while Malaysia, Indonesia and the Philippines should be able to allow themselves a faster pace. gradual and a more moderate increase. The next to start a bull cycle should be Thailand.

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