Asia week ahead: Policy rate decisions from Australia and India

Following softer-than-expected inflation numbers for February, we believe the Reserve Bank of Australia (RBA) will leave the cash rate target unchanged at 3.6% next week. The RBA hinted at its most recent rate-setting meeting that it was looking at a possible pause in rates, and these inflation numbers provide the perfect excuse. We are reserving judgement on whether this marks the peak for cash rates in this cycle. Other data, including from the labour market, could swing this decision one way or the other. Markets are, however, currently betting that 3.6% marks the peak.

We expect the Reserve Bank of India to hike rates a further 25bp at its April meeting, taking the repo rate to 6.75% as inflation remains above the top of the upper target band (6%) and core rates of inflation also remain elevated. We do, however, think that this might be the last hike in this cycle as we expect inflation to drop sharply in March.

March trade data will confirm that global semiconductor demand remains weak and China’s reopening story has yet to boost Korea’s exports. We expect the trade deficit to narrow in March due to a sharp decline in imports rather than a rebound in exports.

Meanwhile, consumer inflation is expected to slow further in March. Utilities and food prices should show a rise, yet mostly be offset by falling in oil prices. Since we expect the CPI to head to 3% in the coming months, we maintain a long-standing Bank of Korea (BoK) forecast that the BoK’s hikes are done for this cycle.

As Caixin’s PMI survey respondents are smaller companies compared to the official PMI survey, we expect Caixin’s manufacturing PMI to record a slower monthly growth as small exporters would be the first in the economy to suffer from weakness in US and Europe economies. However, Caixin services PMI respondents should enjoy more growth from retail sales than the respondents of the official PMI survey, which includes companies in the real estate sector.

China will announce foreign exchange reserves for March on 7 April. This data is important to gauge the direction of cross-border capital flows when US and Europe are at the core of the financial market turmoil. We expect a slight inflow into China in March as China is away from the sources of the turmoil and its economy is recovering.

Singapore retail sales for the month of February could jump 20.7% from the previous year, benefiting from a favourable base. Sales however will likely be in contraction from the previous month as elevated inflation keeps a lid on economic activity. Soft retail sales alongside contracting industrial production and falling non-oil domestic exports point to a subdued GDP report for the first quarter.

Price pressures remain evident in both Indonesia and the Philippines, although both economies should see the headline readings moderate as base effects filter through the data. Indonesia’s headline inflation could slow further to 5.2% year-on-year (from 5.5% previously) although core inflation may likely be unchanged at 3.1%. With core inflation very close to the central bank's inflation target of 3%, Bank Indonesia Governor Perry Warjiyo has opted to keep rates untouched at two consecutive meetings.

Meanwhile, in the Philippines, headline inflation likely dipped to 8%YoY from 8.6% in the previous month. Slowing inflation in the Philippines could allow the Bangko Sentral ng Pilipinas to pause at its May policy meeting. Governor Felipe Medalla hinted that his most recent rate hike could be the last for this episode should inflation continue to trend lower.