Asia’s Central Banks Hit the Rate‑Hike Switch After a Long Wait
For almost a year, Asian central banks have been playing the “wait‑and‑see” game while the rest of the world has been pulling the brakes on monetary policy. Now, inflation is blazing, currencies are sinking, and the upward trend toward higher rates has finally become unavoidable.
Indonesia Looks Set to Join the Party
Monetary FX experts are eyes‑hatched on Indonesia. The country, which has kept a dovish stance lately, is expected to raise rates this Thursday. It’s the last remaining “dove” in the region, and the move will signal to investors that Singapore‑style central bankers are serious about keeping the price spiral in check.
Singapore & the Philippines Shocked the Market with Surprise Tightening
- Singapore slotted a “reset” in policy unexpectedly last week.
- Chile (corrected from “Philippines”) followed suit with an unscheduled tightening.
- Both moves highlighted the urgency felt by policymakers amid rising inflation.
Contrary to the calm that allowed these beasts to keep their interest rates low, the economic rebound after the pandemic only made the local currencies weaker and brought in more capital outflows. The disaster in Ukraine has added fuel to the price‑pressure fire.
Fed’s Acceleration Noted, Asia’s Lag Worrying
When the US Federal Reserve launched its fast‑track tightening in June, Asian economies were still on standby. With relatively low inflation at the time, many thought growth risks were too high to lift rates now. The markets missed the trend.
“I don’t want to sound defensive about our peers elsewhere, but very few saw this coming,” says Ravi Menon, managing director of the Monetary Authority of Singapore, at a recent conference. “The climb in inflation has been quite rapid and unusually fast… many people focused on downside risks to growth and didn’t anticipate this.”
The Cost to Currencies and Bonds
We’ve seen the Philippine peso slide more than 10 % YTD, hovering near a 17‑year low of 56.53 per dollar. In contrast, government bond yields have climbed about 200 bps since the start of the year.
The Thai baht is down over 10 % this year. Thailand’s foreign equities investment streak ended, resulting in an $816 million loss in June.
These moves were a response to rising Treasury yields and the stronger US dollar—conditions outside the control of Asian policymakers—so a delayed rate hike seemed reasonable.
Food & Oil Prices are the New Reality
Now Singapore, Thailand, and Indonesia face inflation at their multi‑year highs. Even South Korea, which has been tightening since August 2021, saw prices hit a 24‑year high in June and response with a record half‑point hike last week.
Nomura’s Economic View
Euben Paracuelles, chief ASEAN economist at Nomura, says the focus is still on fighting inflation in the coming months. “There’s also global headwinds and a potential recession in major economies. Complicating the policy challenge at a time when inflation is picking up sharply across Southeast Asia.”
TL;DR – The Quick Summary
- Asia has lagged behind global rate hikes for nearly a year.
- Central banks may rush to raise rates, starting with Indonesia.
- Currency losses and bond yield spikes hit the region hard.
- Food and oil price surges keep inflation high.
- Policymakers are now forced to take action to restore confidence.
The tug‑of‑war between inflation and growth is here to stay—so get ready for a busy summer of monetary policy changes in Asia.
Peer pressure
Rupees, Rupials & Rate Ruckus
Ever since the Bank of India turned the dial up by 40 basis points back in May, foreign investors have been pulling their money out of India’s equity markets for six straight months. That’s a pretty solid drain that, in turn, sent the rupee tumbling to a record low.
Indonesia’s Slam Dunk
Despite the global slide, the Indonesian rupiah has only slipped roughly 5 % against the dollar so far this year. The steepest monthly drop – a whopping 2.2 % – happened in June, but the country’s strong resource base and a shrinking foreign hold on its high‑yield bonds have kept the flag from going too far down.
- Commodity boom boosts trade
- Foreign investors now own less than 20 % of the country’s high‑yield bonds
- Result: a less volatile currency than the Pacific neighbors
The Dangerous Duo: Philippines & Thailand
Meanwhile, the Philippines and Thailand are feeling more pressure.
Both economies wrestle with current account deficits and, for Thailand, a tourism sector still struggling after COVID.
Economic Voices on Rate Hikes
NG Nicholas Mapa, senior economist at ING, spun: “Indonesia has been able to hold off on rate hikes for now, but I’m betting they’ll increase rates because the global tightening is real.”
Across the board, only 11 of 29 economists surveyed by Reuters think Bank Indonesia will lift rates this Thursday.
UOB’s Enrico Tanuwidjaja warned that “the room for growth‑supportive monetary policy is rapidly closing.” He’s basically saying it’s a tight squeeze that leaves little breathing space.
A senior director at the Bank of Thailand hinted that a key policy rate hike in August is highly likely, and they’re ready to intervene if the baht starts wobbling.
OCBC’s Wellian Wiranto summed it up with a dash of realism: “We’re navigating a global environment where central banks instinctively tighten.” The takeaway? More rate hikes are almost inevitable.
