Asia week ahead: potential rate hike from Bank Indonesia

China’s loan prime rate is one of the highlights for next week. We expect rates for both the 1Y and 5Y rates to remain unchanged at 3.65% and 4.30%, respectively. Credit costs have not come down and this may be one of the concerns that prevent banks from cutting rates. However, there is still a small chance that banks could lower the 5Y loan prime rate to share the government's policy trend of supporting the economy.

Japan’s CPI inflation will be reported next week and is expected to rise even further, reaching 3.9% year-on-year in November. Utilities should be the main reason for the rise, suggested by last week’s Tokyo CPI inflation data. However, despite the recent accelerating inflation, the Bank of Japan is unlikely to change its easing stance and will not give any hint of any policy tweaks in the near future. As a result, another uneventful BoJ meeting is expected next week.

Meanwhile, Singapore’s inflation will likely dip for another month but stay quite elevated at 6.5%YoY. Meanwhile, core inflation could remain flat at 5.1%YoY which will keep the Monetary Authority of Singapore on guard, although we do not see an immediate need for additional central bank action ahead of its planned meeting in April 2023.

Also set for release next week is Taiwan export orders. Orders should continue to contract due to slower growth in the US and Europe amid a still-uncertain growth pick-up in China.

Lastly, Bank Indonesia will likely hike by 25bp. BI will need to sustain rate hikes but softer-than-expected headline inflation could mean that the central bank also slows the pace of its tightening. BI may also need to hike rates to support the rupiah which has faced some pressure after the recent strong support provided by sterling export growth appears to be fading fast.