Articles
3 July 2020

Asia week ahead: All eyes on Malaysia’s central bank meeting

Inflation, manufacturing and trade releases crowd the economic calendar next week in Asia but Malaysia' central bank meeting, where we expect a 50 basis point rate cut will be the highlight 

150318-image-asia_1.png
Source: Shutterstock

Mixed bag of central policy

With the risk of a second wave of Covid-19 looming, the continued policy accommodation remains the order of the day. While some regional central banks still have room to ease further, others have already reached the limits. We look for this divide in the central bank decisions due next week in Australia and Malaysia.

We forecast the Reserve Bank of Australia leaving rates on hold, and we're not alone in this view. There is a unanimous consensus behind this view, especially as the policy rate is currently sitting at an all-time low of 0.25% from where it has no room to fall further. The RBA's Governor Philip Lowe has recently ruled out negative rates and we think he will stick to that. And his deputy, Guy Debelle suggests they are ready to do more quantitative easing if circumstances warrant.

We think Malaysia's central bank will cut rates by 50bp next week

So, all the action is likely to take place at Malaysia's central bank meeting. The Bank has cut the overnight rate by a total 100 basis point so far this year to 2.00% - also an all-time low. The consensus for next week is split between ‘more cuts’ and ‘on-hold’ outcomes, and there is a further split within the rate-cut camp on a 25bp or a 50bp cut. We believe a 50bp cut is on the table next week.

The Covid-19 lockdown has thrown the Malaysian economy into the worst recession in decades. The negative CPI inflation (-2.9% YoY in the last two months), has left the real rate as one of the highest in Asia, offering scope for another rate cut in the nominal rate. A timely dose of easing, while there is room for it, will go some way in shoring up domestic demand, though the overall recovery will still hinge on the external factors, given the economy greater reliance on exports and tourism.

Therefore, we see no reasons why the central bank should take a pause next week. On the contrary, we believe the easing cycle has more room to run with our forecast of a total 100bp of rate cuts this quarter.

Slow growth, low inflation

Inflation, manufacturing, and trade release dominate the data pipeline next week.

China, Taiwan and the Philippines report CPI inflation for June. The release of the pent-up demand and continued supply chain disruption might cause pick-up in inflation in some countries, though we don’t anticipate a significant drift away from the subdued inflation trend in place so far this year.

Taiwan and the Philippines report trade data for June and May respectively. The obvious focus here will be on export performance. So far this year, Taiwan’s exports have been the best performers in Asia (up 1.5% YoY year-to-date) and the Philippines’s the worst (down 16.5%). We should see this north-south performance gulf prevail.

Lastly, industrial production releases in India and Malaysia for May will help to gauge the GDP performance of these countries in 2Q20. Besides weak domestic demand due to Covid-19 restrictions, a sharp plunge in exports in May (by 36.5% YoY in India and 25.5% in Malaysia) should have dented manufacturing, supporting our view of a double-barrel rate cut next week and more monetary easing from India's central bank this quarter.

Asia Economic Calendar

 - Source: ING, Bloomberg, *GMT
Source: ING, Bloomberg, *GMT

Disclaimer

"THINK Outside" is a collection of specially commissioned content from third-party sources, such as economic think-tanks and academic institutions, that ING deems reliable and from non-research departments within ING. ING Bank N.V. ("ING") uses these sources to expand the range of opinions you can find on the THINK website. Some of these sources are not the property of or managed by ING, and therefore ING cannot always guarantee the correctness, completeness, actuality and quality of such sources, nor the availability at any given time of the data and information provided, and ING cannot accept any liability in this respect, insofar as this is permissible pursuant to the applicable laws and regulations.

This publication does not necessarily reflect the ING house view. This publication has been prepared solely for information purposes without regard to any particular user's investment objectives, financial situation, or means. The information in the publication is not an investment recommendation and it is not investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Reasonable care has been taken to ensure that this publication is not untrue or misleading when published, but ING does not represent that it is accurate or complete. ING does not accept any liability for any direct, indirect or consequential loss arising from any use of this publication. Unless otherwise stated, any views, forecasts, or estimates are solely those of the author(s), as of the date of the publication and are subject to change without notice.

The distribution of this publication may be restricted by law or regulation in different jurisdictions and persons into whose possession this publication comes should inform themselves about, and observe, such restrictions.

Copyright and database rights protection exists in this report and it may not be reproduced, distributed or published by any person for any purpose without the prior express consent of ING. All rights are reserved.

ING Bank N.V. is authorised by the Dutch Central Bank and supervised by the European Central Bank (ECB), the Dutch Central Bank (DNB) and the Dutch Authority for the Financial Markets (AFM). ING Bank N.V. is incorporated in the Netherlands (Trade Register no. 33031431 Amsterdam).