9 May 2014
Asia EM Express: Indonesia, Philippines, Malaysia and South Korea hold rates steady in May
FXStreet (Łódź) - On Thursday and Friday central banks of several Asian countries: Indonesia, Philippines, Malaysia and South Korea, announced their monetary policy decisions. As expected, all of them kept their interest rates on hold.
Bank Indonesia maintained the main interest rate steady at 7.5% for the sixth running month, after hiking it from 7.25% in October 2013.
In the official statement the central bank said that “This policy is consistent with ongoing efforts to steer inflation back towards its target corridor of 4.5±1% in 2014 and 4.0±1% in 2015, as well as reduce the current account deficit to a more sustainable level.” It also acknowledged the strengthening of the IDR and pledged to “consistently maintain rupiah exchange rate stability according to its fundamental value.”
As BI also mentioned possible “inflationary pressures from administered price hikes and food price inflation arising from droughts caused by El Nino,” Cristian Maggio, Senior Emerging Markets Strategist at TD Securities remarks that “while the current BI stance is neutral, we think there is still need for a hike later this year.”
The next bank to announce its monetary policy was the Philippines central bank, Bangko Sentral ng Pilipinas, which kept its key rate steady at 3.5% and brought the reserves requirement up again by 100bps to 20%. This last move was due to the BSP's concerns over the excess liquidity and rapid credit growth.
Prakash Sakpal from ING signals: “The Philippines remains on the rating upgrade cycle, which is positive for local financial asset. We are bullish on all financial assets, including the Peso.”
Furthermore on the same day Standard and Poor's upgraded Philippine's credit rating by one notch to from BBB- to BBB with a stable outlook. The agency recognized that the reforms implemented by the country were sustainable.
Nomura research analysts Euben Paracuelles and Lavanya Venkateswaran remarkt that it was a a “positive surprise” due to the pace at which the upgrade took place. “With S&P already upgrading by a notch, we could see at least two ratings agencies at 'BBB' as Moody's is likely to follow suit, possibly before the end of President Aquino's term in 2016,” they add.
Meanwhile, Central Bank of Malaysia kept its rates steady at 3% in May. In the statement accompanying the decision it said however that inflation is “expected to remain above its long-run average due to the higher domestic cost factors,” leading to “signs of the continued build-up of financial imbalances.” That is why the MPC expects that “the degree of monetary accommodation may need to be adjusted to ensure that the risks arising from the accumulation of these imbalances would not undermine the growth prospects of the Malaysian economy.”
In the opinion of Cristian Maggio hikes could be carried out in the third and the second quarter of the year and “the earliest the process of policy normalization can start is at the next meeting on July 10th.”
Finally, Bank of Korea announced on Friday its decision to maintain rates steady at 2.5% for the twelfth straight month, after cutting it from 2.75% in April 2013. The MPC said in the official statement that it would assess the impact of the recent ferry disaster on domestic consumption, while Governor Lee Ju-yeol said at the subsequent press conference that the negative implications could have a lasting effect, but that the government would try to diminish them through policy measures.
Young Sun Kwon and Wee Khoon Chong from Nomura suggest that “about half of the lost consumption in April will be recovered in May-June, meaning a domestic consumption recovery in H2 after a temporary slump in Q2.”
“We maintain our call for a 25bp rate hike in December 2014, but now see a risk that
this is pushed back,” the analysts add.
Economic data
China's inflation surprised on the downside in April, with the year-on-year data coming in at 1.8%, down from 2.4% seen in March and below expectations of 2%. On a monthly basis CPI dropped 0.3%, following a 0.5% decrease and below forecasts of -0.1%.
“It’s all about food prices whose year-over-year increase slowed to 2.3% from 4.1% in March,” Prakash Sakpal from ING comments. “If there’s going to be an inflation spike it’s going to come from the food component. However, supply shocks are unpredictable.”
“We have revised our full-year 2014 inflation forecast to 2.3% from 2.6% on expectation that annual increase in the food component remain at the April year-to-date level.”
Also on Friday China released the Producer Price Index which year-on-year showed a 2% decline in April, up from the 2.3% fall in March and below consensus of -1.8%.
Technicals
The South Korean won fell on Friday by 0.2% to 1024.4, reversing earlier gains but ending the week higher at 0.6%. At the end of the day on Thursday the currency was trading at 1022.6.
The Indonesian rupiah strengthened 5.6% since the beginning of the year to 11,529 against the dollar. On Friday USD/IDR was down by 0.15% at 11,535.
The Philippine peso rose to a five-month high on Thursday, following S&P's credit rating upgrade, strengthening 0.7% to 43.868 per dollar, which led to a 1.4% increase this week.
The Malaysian ringgit rose 0.1% to 3.2470 per greenback on Thursday, up from an early 2-day low of 3.2537. The pair traded at 3.2502 at the Wednesday close.
Bank Indonesia maintained the main interest rate steady at 7.5% for the sixth running month, after hiking it from 7.25% in October 2013.
In the official statement the central bank said that “This policy is consistent with ongoing efforts to steer inflation back towards its target corridor of 4.5±1% in 2014 and 4.0±1% in 2015, as well as reduce the current account deficit to a more sustainable level.” It also acknowledged the strengthening of the IDR and pledged to “consistently maintain rupiah exchange rate stability according to its fundamental value.”
As BI also mentioned possible “inflationary pressures from administered price hikes and food price inflation arising from droughts caused by El Nino,” Cristian Maggio, Senior Emerging Markets Strategist at TD Securities remarks that “while the current BI stance is neutral, we think there is still need for a hike later this year.”
The next bank to announce its monetary policy was the Philippines central bank, Bangko Sentral ng Pilipinas, which kept its key rate steady at 3.5% and brought the reserves requirement up again by 100bps to 20%. This last move was due to the BSP's concerns over the excess liquidity and rapid credit growth.
Prakash Sakpal from ING signals: “The Philippines remains on the rating upgrade cycle, which is positive for local financial asset. We are bullish on all financial assets, including the Peso.”
Furthermore on the same day Standard and Poor's upgraded Philippine's credit rating by one notch to from BBB- to BBB with a stable outlook. The agency recognized that the reforms implemented by the country were sustainable.
Nomura research analysts Euben Paracuelles and Lavanya Venkateswaran remarkt that it was a a “positive surprise” due to the pace at which the upgrade took place. “With S&P already upgrading by a notch, we could see at least two ratings agencies at 'BBB' as Moody's is likely to follow suit, possibly before the end of President Aquino's term in 2016,” they add.
Meanwhile, Central Bank of Malaysia kept its rates steady at 3% in May. In the statement accompanying the decision it said however that inflation is “expected to remain above its long-run average due to the higher domestic cost factors,” leading to “signs of the continued build-up of financial imbalances.” That is why the MPC expects that “the degree of monetary accommodation may need to be adjusted to ensure that the risks arising from the accumulation of these imbalances would not undermine the growth prospects of the Malaysian economy.”
In the opinion of Cristian Maggio hikes could be carried out in the third and the second quarter of the year and “the earliest the process of policy normalization can start is at the next meeting on July 10th.”
Finally, Bank of Korea announced on Friday its decision to maintain rates steady at 2.5% for the twelfth straight month, after cutting it from 2.75% in April 2013. The MPC said in the official statement that it would assess the impact of the recent ferry disaster on domestic consumption, while Governor Lee Ju-yeol said at the subsequent press conference that the negative implications could have a lasting effect, but that the government would try to diminish them through policy measures.
Young Sun Kwon and Wee Khoon Chong from Nomura suggest that “about half of the lost consumption in April will be recovered in May-June, meaning a domestic consumption recovery in H2 after a temporary slump in Q2.”
“We maintain our call for a 25bp rate hike in December 2014, but now see a risk that
this is pushed back,” the analysts add.
Economic data
China's inflation surprised on the downside in April, with the year-on-year data coming in at 1.8%, down from 2.4% seen in March and below expectations of 2%. On a monthly basis CPI dropped 0.3%, following a 0.5% decrease and below forecasts of -0.1%.
“It’s all about food prices whose year-over-year increase slowed to 2.3% from 4.1% in March,” Prakash Sakpal from ING comments. “If there’s going to be an inflation spike it’s going to come from the food component. However, supply shocks are unpredictable.”
“We have revised our full-year 2014 inflation forecast to 2.3% from 2.6% on expectation that annual increase in the food component remain at the April year-to-date level.”
Also on Friday China released the Producer Price Index which year-on-year showed a 2% decline in April, up from the 2.3% fall in March and below consensus of -1.8%.
Technicals
The South Korean won fell on Friday by 0.2% to 1024.4, reversing earlier gains but ending the week higher at 0.6%. At the end of the day on Thursday the currency was trading at 1022.6.
The Indonesian rupiah strengthened 5.6% since the beginning of the year to 11,529 against the dollar. On Friday USD/IDR was down by 0.15% at 11,535.
The Philippine peso rose to a five-month high on Thursday, following S&P's credit rating upgrade, strengthening 0.7% to 43.868 per dollar, which led to a 1.4% increase this week.
The Malaysian ringgit rose 0.1% to 3.2470 per greenback on Thursday, up from an early 2-day low of 3.2537. The pair traded at 3.2502 at the Wednesday close.