Asian central banks take a pause from interest rate increases

With the increase in uncertainties to the global economic outlook, central banks appear to be taking a pause from further interest rate increases. The latest evidence came from the Bank of Korea this week where, despite rising inflation—to 5.3% in August, well above the 2-4% target range—the monetary policy committee left interest rates unchanged for a third straight month at 3.25%.

The central bank flagged weakness in the outlook for developed economies, while still expressing confidence in the resilience of the domestic economy. Echoing similar concerns about the health of the global economy, the Reserve Bank of Australia and Bank Indonesia remained on hold at 4.75% and 6.75% respectively this week, and Malaysia and the Philippines followed suit.

These actions are in line with other central banks which appear to have shifted to pause, including the People’s Bank of China (PBoC) and the Reserve Bank of India, both of whom had implemented aggressive tightening campaigns earlier this year. At the same time, some central banks remain on alert for inflation, with Thailand’s central bank hiking rates as recently as August 24, and the PBoC continuing to take steps to curb credit growth (for example, through a recent widening in required reserve requirements).

With the stance of monetary policy across the region remaining highly accommodative on the whole, and with inflation pressures persisting and growth so far proving surprisingly resilient, we expect gradual tightening to resume if and when the global environment stabilizes.