ASEAN CBs move vs price threats

Some of Asia-Pacific’s biggest economies will advance rate plans in their next policy meetings to act against soaring inflation, with resilient growth providing leg room to tighten monetary policy, Moody’s Analytics said in its Weekly Economic Review.

In the Philippines, the Bangko Sentral ng Pilipinas raised its benchmark rate by 50 basis points at last week’s meeting, taking the overnight reverse repo rate to 3.75 percent.

The BSP’s aggressive rate hikes in recent months show a commitment to its price stability mandate.

“Central banks in South Korea and Indonesia are expected to hike their respective policy rates by 25 basis points at their August policy meetings. The Bank of Korea is trying to anchor short-term inflation expectations. With inflation at 6.3 percent year-on-year in July, it has its work cut out for it,” Moody’s Analytics said.

The credit watchdog added that the rate hikes would weaken the purchasing power in the regions, with the consumers feelings its impact in real-time because household debt is already high and most mortgage holders are on flexible-rate loan rates.

“Our baseline assumes a 25-basis point hike; we put the odds of a 50-basis point rise at 25 percent,” it added.

According to Moody’s, the Bank of Indonesia would finally come off the sidelines and raise its benchmark seven-day reverse repo rate by 25 basis points to 3.75 percent. At its last meeting, BI described core inflation as ‘stable,’ citing this as a reason for not raising rates. But core inflation climbed to 2.9 percent y/y in July from 2.6 percent in the previous month.

Indonesia’s strong GDP print of 5.4 percent y/y in the June quarter is a testament to the strength of domestic demand and further supports a decision to move finally, it said.

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