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Economists from Bank of America think that the Federal Reserve’s counterparts in the Asian emerging markets are in no hurry to chase the US central bank in its sharp turn to a hawkish stance, according to a CNBC report.
Global markets have witnessed a wave of volatility as investors have repositioned in anticipation of multiple rate hikes from the US Federal Reserve. In the past, this has hurt Asia’s emerging economies as it drives the dollar and the US Treasury yields higher stimulating capital flight from the region.
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According to BofA economist Tan Boon Heng, the recent monetary policy announcements have revealed 'great patience' by the central banks in Asian countries like Thailand, Malaysia and Indonesia.
Most of the monetary authorities in Asian emerging markets are likely to be on their own pace and pay more attention to domestic demand recovery, with little concerns of falling behind the curve, wrote the economists in a recent note.
The economists lined up some of the key factors that helps central banks in emerging Asia wait for a longer time. These include:
- The annual inflation based on the consumer price index (CPI) is expected to stay broadly in line with the policy targets, which warrants the regional central banks to adjust monetary policies at their own pace.
- The current forecasts suggest that the average gross domestic product (GDP) growth of Asia's emerging markets (EM) during 2020-22 will remain below the pre-COVID level.
- Foreign exchange reserves continued to grow in Asia's emerging markets despite the sharp capital outflow in 2020. Also, these markets run a current account surplus, even as a net commodities importer.
The Asian emerging market central banks, except for the People’s Bank of China, will gradually tighten the monetary policies, instead of being in adherence with the Fed, according to the BofA economists.
China’s economy was one of the first in the world to return to growth during the pandemic’s first year. However, the subsequent withdrawal of stimulus and policy tightening has since led to a sharp slowdown in the domestic demand.
The Bank of Thailand, Bank Negara Malaysia and Bank Indonesia have all held steady on key interest rates. The Philippines’ central bank, is expected to complete the unanimous policy hold at its meeting this week, which is in sharp contrast to peers in South Korea and Singapore, where authorities have tightened monetary policy to combat inflation.
The Reserve Bank of India (RBI) in its first bi-monthly monetary policy committee (MPC) meeting for 2022 headed by Shaktikanta Das, also held on to its key rates for the tenth time in a row maintaining an accommodative stance in the backdrop of elevated level of inflation.
