22 March 2018
Welcome to China! Foreign payment companies

The central bank has decided to permit foreign payment companies to invest in China on a level playing field with local companies. Is this a reaction to US trade protectionism talks?

Earlier today, the People's Bank of China announced foreign payment companies can now invest in China, as a signal of opening up the financial market. The timing of this policy is interesting as the US government is due to release a package of proposed punitive measures that include tariffs on imports worth at least $30 billion tomorrow.

Malaysia: Inflation misses estimates, again

Based on strong growth and benign inflation trends, we still look for Malaysia's central bank, Bank Negara Malaysia, to raise rates later this year    

Food, housing, transport drag inflation lower

Malaysia’s consumer price inflation slowed more than expected to 1.4% year-on-year in February from 2.7% in January (consensus 1.9%, ING forecast 1.7%). It’s no surprise that the food and transport CPI components continued to slow, thanks to the favourable base effects in both. Lower housing prices also helped despite seasonal quarterly hikes in rentals in the last month. Core inflation, which strips out food and fuel-related components from the total CPI, also slowed to 1.8% in February from 2.2% in January.

Among other inflation drivers, steadily falling inflation of import prices reflects the impact of continuing strength of the Malaysian ringgit (MYR) whereas the impact of rapid growth in domestic wages on consumer prices continues to be muted.

How will China’s new central bank governor run the new central bank?

With more responsibilities to regulate the banking and insurance sectors, how will Yi Gang - the new central bank governor run the People’s Bank of China? 

Yi Gang, the newly appointed governor of the People Bank of China has been part of the bank for a considerably long time and is likely to continue the ongoing reforms laid out by governor Zhou Xiaochuan which should help smooth the takeover and minimise any uncertainties on interest and exchange rate markets.

Currently, there are three policies governed by the PBoC, namely, the monetary and exchange rate policies along with capital controls and the first two are under reforms.

Thailand: An upside trade surprise

Re-pricing for narrowing external surplus and lingering political uncertainty will likely weigh on THB performance going forward

Positive swing in trade balance

Consistent with our forecast, Thailand’s external trade balance bounced to $808m surplus in February from $119m deficit the previous month (consensus: $636m, ING forecast: $831m surplus). Export growth slowed to 10.3% year-on-year from 17.6% in January while imports also slowed, to 16.0% from 24.3%.

Weak domestic spending

Import growth outpaced export growth in most of 2017 and this trend continues to hold into 2018. We view this more as a function of rising global oil prices boosting the fuel import bill (see chart), rather than an underlying recovery in domestic demand. A side effect of weak domestic demand is a wide trade surplus, albeit with a modest narrowing of the surplus underway since last year. At $13.9bn, the trade surplus in 2017 was $7.3bn narrower than the previous year. It narrowed further, by $1.7bn YoY, in the first two months of 2018. If sustained this should drive the current account surplus below 10% of GDP in 2018, from 10.8% in 2017 and a record 11.9% in 2016.

THB re-pricing

The large trade and current account surpluses support positive sentiment toward the currency. The Thai Baht (THB) remains Asia’s top-performing FX with 4.4% year-to-date appreciation against the US dollar. We believe re-pricing for narrowing external surplus and lingering political uncertainty surrounding timing of general elections will weigh on THB performance going forward. We forecast a tight range trading of USD/THB around the 31 level through the end of the year (spot 31.2, ING and consensus forecast for end-2018: 31.0).

Reading time around 3 minutes

Good MornING Asia - 22 March 2018

Fed Chair, Jerome Powell delivered a 25bp hike at the March FOMC meeting - as universally expected - median expectations for total hikes from the dot plot remains three in total for 2018

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