Next week's highlights are monetary policy decisions in Australia and South Korea. In addition, China and Taiwan will release inflation data, while Taiwan publishes trade data. Singapore will report its flash estimate for second-quarter GDP
Australia’s consumer price index inflation data surprised to the downside once again in May, with easing pressures particularly evident in rents and several services categories. While Tuesday’s Reserve Bank of Australia meeting coincides closely with the 9 July deadline for a pause in reciprocal tariffs, we believe Australia remains relatively insulated from their direct impact. Additionally, softer US economic data and market expectations of more aggressive and earlier rate cuts by the Federal Reserve provide further support for a rate cut by the RBA.
The Bank of Korea meets on Thursday. Markets largely anticipate no change in policy, following a rate cut in May. We believe that the BoK aims to maintain its easing cycle. Inflation appears to be stabilising around the 2% level. Monthly activity data suggests that the recovery in the second quarter may be modest.
However, it’s also important for the BoK to exercise caution amid increases in housing prices in Seoul and rising household debt. The government recently implemented stringent mortgage measures, including capping the limit for mortgage lending at 0.6 billion KRW and tightening loan-to-value (LTV) and debt-service-ratio (DSR) rules to address excesses. It will take some time for these measures to take full effect. Consequently, the BoK is likely to proceed cautiously and may delay any further rate cuts until the fourth quarter.
China’s main data release is inflation data. Downward price pressures have left China’s main inflation indicators in deflation over the past few months. June’s data does not look likely to mark a reversal. We expect CPI to remain in contraction at -0.1% year on year as the recent food price declines continue to drag headline inflation. Producer price index inflation will likely remain in contraction for a 33rd consecutive month. Extreme price competition, one of the main factors behind deflationary pressure, has recently caught the attention of policymakers, who will aim to crack down on disorderly price competition moving forward.
Taiwan publishes its June trade and inflation data on Tuesday. We expect trade growth will moderate both for exports and imports, with exports slowing to 27.0% YoY and imports slowing to 8.7% YoY, for a trade surplus of USD 12.4bn. Inflation is expected to rebound slightly in June, rising to 1.7% YoY, but remain comfortably below target. A cooling of inflation and the recent TWD appreciation do potentially create conditions for the central bank to consider a rate cut in the coming meetings. Thus far, the urgency seems limited, with activity data consistently beating forecasts in recent months. Whether or not reciprocal tariffs come back on after the 9 July deadline could impact whether this trend continues.
Singapore’s recent activity data, including on industrial production and electronics exports, was better than our expectations given the easing in tariffs-related uncertainty. Hence, we have revised our 2Q estimate up to 2.7% yoy.
