The Fullerton Weekly: Asia’s Efforts to Curb Rising Inflation (9 May 11)

Asia’s Efforts to Curb Rising Inflation
Inflation results mixed
Inflation data for April was mixed with Thailand and the Philippines surprising on the upside while Korea, Taiwan and Indonesia surprised on the downside. However, the trend towards monetary tightening remains clear with central banks in the region tightening their grip on inflation. India – Steps up efforts to contain inflation The Reserve Bank of India (RBI) surprised the market last week when it abandoned its gradual approach to monetary tightening with a larger than expect 50bps hike to the repo and reverse repo rates to 7.25% and 6.25% respectively. The RBI’s adoption of a more hawkish stance follows a continued surge in inflation, which has risen beyond the bank’s 8% fiscal year-end projection. The central bank also raised deposit rates by 50bps. Philippines – Hikes policy rate To rein in inflation expectations and meet its 2011 inflation target of 3%-5%, the Philippine central bank hiked its policy rate by a further 25bps to 4.5%. The adjustment was in line with market expectations. Malaysia – Raises both OPR and SRR Bank Negara Malaysia (BNM) unexpectedly hiked the overnight policy rate by 25bps to 3% and also revised the Statutory Reserve Requirement ratio (SRR) to 3% from 2%. The policy decision was underpinned by strong growth in domestic demand and BNM expects the global recovery to continue, albeit with heightened downside risks. Still positive on Asian FX We remain positive on Asian currencies in our Asian fixed income portfolios, as we expect Asian central banks to be more tolerant of currency strength to curb imported inflationary pressures.

DOWNLOAD HERE!