People's Bank of China

Our call: Rate cuts and targeted reserve requirement ratio (RRR) cuts in 3Q22 and 4Q22 respectively.

Rationale: The economy has suffered from disrupted demand due to social distancing measures. The wages of some consumers are affected, and their consumption demand is falling. But there is also a big pool of consumers that have stable incomes but cannot spend due to lockdowns. It is a similar story for producers. As such, we cannot expect monetary policy to do a lot to help the economy. Targeted RRR cuts that focus on small and medium-sized enterprises could be more relevant in this situation.

Risk to our call: Preventing inflation is mentioned repeatedly by the PBoC. The central bank may refrain from cutting rates if this is one of its top priorities.

Iris Pang

Reserve Bank of India

Our call: Rate hike in June, and most likely August. September and December hang in the balance.

Rationale: The RBI surprised markets with an unscheduled 40bp rate hike in June as March inflation data touched 7.0%. Inflation has almost certainly further to climb, and the 40bp increase in rates in May does little to close the gap between policy rates (4.4%) and headline inflation, so there is certainly more hiking to come. That said, the RBI’s statement shows that it is still fixated on supporting growth, and its goal is to remove accommodation rather than to tighten policy (an important semantic distinction) so we don’t anticipate that it will increase the pace of its tightening, or hike at every meeting until it closes the gap with inflation.  

Risk to our call: The current RBI guidance may be misleading if inflation remains high, or accelerates, or if there is evidence of second-round effects, in which case, the pace and frequency of tightening could also accelerate.

Rob Carnell

Bank of Korea

Our call: Rate hike in May, July and November then a pause for the next year.

Rationale: We expect CPI to shoot up and stay higher than expected until 3Q22, while GDP growth is likely to slow only modestly and remain relatively healthy on the back of reopenings and supportive fiscal policy. We expect the Bank of Korea to frontload its hikes in the near future but as we approach year-end, it will slow down and try not to go beyond 2.25%. However, markets expect BoK hikes to continue next year and go beyond that level.

Risk to our call: If higher wage growth pushes up inflation by more than expected, then the BoK may deliver additional rate hikes this year.

Min Joo Kang

Bank Indonesia

Our call: Rate hikes in June and August.

Rationale: Perry Warjiyo, the governor of Bank Indonesia, has hinted at a potential move since January but has pointed to core inflation as the trigger point. Core inflation, now at 2.6%, should continue to accelerate in the near term. A sustained rise in core inflation coupled with a robust 1Q GDP report should prod an adjustment from BI by June followed up with a second adjustment by August.    

Risk to our call: Concern about the stability of growth has been the main reason behind the reluctance to hike so far this year. Any signs that the recovery is faltering could force a pause or delay in the BI rate hike cycle. 

Nicholas Mapa

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