Asia week ahead: Central bank policymakers get busy

Five Asian central banks will review their monetary policy settings in light of the latest economic developments. But none are expected to alter their current accommodative policy stances given that the Covid-19 Delta variant continues to threaten the economic recovery ahead.

In China, weak activity growth in August may nudge the People’s Bank of China towards easing, though we don’t anticipate any easing via cuts to the Loan Prime Rate next week. The PBoC’s preferred tool for easing seems to be the reserve requirement ratio (RRR) as reflected by a surprising 50bp broad-based RRR cut in July. We believe the doors are open for further 50bp of RRR cuts - most likely in October (here is more on this by Iris Pang).

Just like the mainland, Taiwan’s economy is also reeling under the adverse effects of Covid-19 as well as chip shortages. However, the Central Bank of the Republic of China (Taiwan) left policy rates unchanged through the worst of the economic weakness last year and is expected to give it a miss this time, too.

There is nothing noteworthy about the Bank of Japan policy meeting as the central bank persists with its ongoing struggle to achieve its 2% inflation target. The CPI inflation figures for August won’t alter this state of affairs as the negative inflation streak since last October stretched into another month.

In Southeast Asia, central banks in Indonesia and the Philippines are also expected to leave their rate policies on hold. Bank Indonesia’s Governor, Perry Warjiyo, recently indicated a sustained “pro-growth” policy stance over the rest of this year as inflation has been below the central bank’s 2-4% policy target (1.6% YoY in August). In the Philippines, Bangko Sentral ng Pilipinas Governor, Benjamin Diokno, has also vowed to retain accommodative policy settings as the latest Covid-19 wave and multiple lockdowns have been weakening the economy. Even so, the odds of additional BSP easing are very slim given the current unfriendly inflation backdrop – inflation pushed above the BSP’s 2-4% policy target to 4.9% YoY in August (read Nicky Mapa's latest Indonesia and Philippines notes for more).

The Reserve Bank of Australia’s policy minutes of the September meeting are probably the least dull central bank event of the bunch, given that the resurgent pandemic forced the RBA to embrace flexibility on its asset purchase programme. Moreover, the dismal Australian August labour report just released warns against any imminent unwinding (read Rob Carnell's recent pieces on the RBA policy and jobs data).

Inflation, manufacturing and trade releases dominate the data pipeline next week. These should reinforce the balance of economic risks shifting back towards growth from inflation.

As well as Japan, Singapore and Malaysia will both report their inflation rates for August and are both likely to see inflation continuing to slow from recent highs.

Korea’s trade figures for the first 20 days of September and advanced manufacturing and services PMIs from Japan and Australia will shed light on how 3Q21 is finishing up for growth. A key question for the Korean data is whether the year-to-date semiconductor export surge is running out of steam. This is because continuing global chip shortages have been pushing the limits on production capacity.

We may also get more evidence of this from Singapore’s August manufacturing data, which may show semiconductor output falling further after a 0.4% YoY drop in July.