Asia week ahead: Monetary policy decisions in Australia, China, Indonesia take centre stage

We continue to expect the Reserve Bank of Australia to cut its cash rate by 25 basis points to 3.85%. April inflation readings, across most metrics, exceeded consensus expectations on both a year-on-year and quarter-on-quarter basis. Yet core inflation, which the RBA likely prioritises over headline rates, fell to 2.9% year on year. This marks the first time since 2021 that core inflation fell within the RBA's target range.

Monday starts with China’s April data dump. We expect the focus on domestic demand to continue to bear fruit in April, with retail sales accelerating to 6.3% YoY, up from 5.9% YoY. Fixed-asset investment is expected to remain broadly steady, with a 0.1pp uptick to 4.3% YoY, year-to-date. Earlier this month, purchasing managers’ index (PMI) and trade data suggested that a mild moderation could be expected in industrial production. We expect IP to drop to 6.0% YoY from 7.7% YoY. China’s 70-city property prices, out Monday, will show whether a trough has finally been established. In recent months, data suggested more and more cities stabilizing, or seeing an uptick in prices. However, the overall level has yet to turn positive. On Tuesday, banks will announce decisions on 1-year and 5-year loan-prime rates. We expect a 10bp reduction after the People’s Bank of China cut the 7-day reverse repo rate earlier this month.

We expect Taiwan’s export orders data, out on Tuesday, to show growth moderated to around 5.5% YoY in April. This, after a very strong first quarter, driven by frontloading of trade. On Thursday, we expect data to show that Taiwan’s unemployment rate stayed in the very narrow range of 3.35-3.40%, which has held since the fourth quarter of 2023.

Japanese data should show signs of softening, with US tariffs weighing on exports and manufacturing. Thus, we expect flash manufacturing PMI to decline. Exports are likely to rise in April (by 2.5% YoY), but at a slower pace than in March. Despite the decline in US exports, solid exports to Asia should support overall export growth. Also, a sharp decline in imports should keep the trade balance surplus. Meanwhile, core inflation is expected to accelerate quite sharply in April, most likely in service prices.

A slowdown in Indonesian GDP growth amid tariff uncertainty does call for further rate cuts. However, seasonal weakness in the IDR in 2Q is likely to push rate cuts to June. We expect Bank Indonesia to leave rates unchanged at 5.75% at next week’s review.