Asia Central Bank Watch · 2019-11-28 · 1 Asia Central Bank Watch ― Nov ’19: Dovish Pause or Policy Wall?― A flurry of rate cuts has been driven by global manufacturing downturn

1

Asia Central Bank Watch ― Nov ’19: Dovish Pause or Policy Wall?―

A flurry of rate cuts has been driven by global manufacturing downturn amid elevated

trade uncertainties. And the slew of easing witnessed globally has entailed both Taylor-

type responses to growth-inflation triggers as well as precautionary “insurance cuts”.

Riding on the tailcoats of a Fed’s rate cuts (cumulative 75bps rate cuts since July), Asian

central banks have been emphatically, albeit unevenly, dovish; from the RBI’s 135bp rate

cuts by the RBI to a measured 25bp fine-tuning by the BNM.

And with monetary easing mostly front-loaded most central banks are approaching policy

limits (some more than others, of course). Especially if the global economy finds a gentle

bottom amid de-escalation in US-China trade tensions.

But even if not, central banks cannot be the only game in town given wider risks

associated with; currency stability; fiscal slippage, financial stability and/or “liquidity trap”

impediments. And so, even if downside risks to growth emerge, there is a fine line between

resuming from a dovish pause and inevitably hitting a policy wall.

27 November 2019 Mizuho Bank, Ltd.

Asia & Oceania Treasury Department

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

4.35% 4.35% 4.35% 4.35% 4.35% 4.35% 4.35% 4.20% 4.20%

-- - 4.35% 4.20% 4.00% 4.00% 3.80% 3.70% 3.60%

India RBI 2.0 - 6.0% 6.50% 6.25% 5.75% 5.40% 5.15% 5.00% 5.00% 5.00% 5.00%

Korea BoK 1.5 - 2.5% 1.75% 1.75% 1.75% 1.50% 1.25% 1.00% 1.00% 1.00% 1.00%

Singapore MAS* 1.0 -2.0%

"Slightly" steepen

S$NEER slope (~1%

p.a)

Malaysia BNM 2.0 - 3.0% 3.25% 3.25% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00%

Indonesia BI^ 2.5 - 4.5% 6.00% 6.00% 6.00% 5.25% 5.00% 4.75% 4.50% 4.50% 4.50%

Thailand BoT 1.0 - 4.0% 1.75% 1.75% 1.75% 1.50% 1.25% 1.00% 1.00% 1.00% 1.00%

Philippines BSP** 1.0 - 3.0% 4.75% 4.75% 4.50% 4.00% 4.00% 3.75% 3.75% 3.75% 3.75%

Vietnam SBV 2.0 - 6.0% 6.25% 6.25% 6.25% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00%

Australia RBA 2.0 - 3.0% 1.50% 1.50% 1.25% 1.00% 0.75% 0.75% 0.50% 0.50% 0.50%

^ PBoC instituted a new rate to be the effective prime rate (that inherently sets a floor on commercial interest rates). This is seen as a complementary policy tool.

Status Quo

PBoC

Country End 2018Inflation

Target

Central

Bank

2019

1.5 - 3.5%

* The MAS conducts monetary policy via FX. Specifically it adopts a trade-weighted SGD appreciation at "modest and gradual" (estimated to be 2% per annum)

BI shifted to the 7 Day repurchase rate as the benchmark rate in August 2016. This by default constituted 125 bps reduction from the last policy rate

** BSP instituted an interest rate corridor policy in June 2016. The new effective policy rate is the overnight reverse repurchase rate.

2020

Status Quo Status Quo

Slightly reduce S$NEER

slope (~0.5% pa)

China

Vishnu Varathan

Head, Economics & Strategy

[email protected]

Zhu Huani

Market Economist

[email protected]

2

Executive Summary

G3: A Dovish Pause, in line with expectations of bottoming global demand

appears to be shaping up. But downside risks and dovish reflexes may dominate.

EM Asia: Rash of rate cuts emboldened by “insurance” bias leaves more

constrained and uneven scope to ease; as financial stability priorities emerge.

PBoC: Chronic slowdown squares with an easing bias; effected through drip-

feed of calibrated rate cuts and liquidity management; not CNY devaluation.

RBI: Aggressive rate cuts (of 135bp) appear a tad stretched amid inflation

rebound. But credit logjam and confidence deficit may prompt a measured cut.

MAS: Calibrated reduction of S$NEER slope in the context of an assumed soft

landing in 2020 set the stage for a wait and watch stance into 2020.

BNM: One more 25bps rate cut may still be on the table for 2020; even as BNM

has prioritized financial stability (to hold in Oct-2019).

BI: Two more rate cuts in 2020, contingent on a fairly accommodative Fed setting

and benign inflation; though fiscal slippage and IDR stability are limiting factors.

BoT: Chronic inflation undershoot and stubborn THB strength accommodate

another 25bp cut in for 2020; complemented with THB tempering macro-measures.

BSP: With inflation looking adequately subdued and the BSP with sufficient

levers to tweak liquidity, measured rate cuts into 2020 are on course.

SBV: Set to continue prioritizing VND stability; supplemented by liquidity

easing to buffer against growth risks; especially as inflation creeps higher.

RBA: A brief pause with one more rate cut in early-2020 to safe-guard against

negative jobs-consumption knock-on; risks; as inflation remain benign.

BoK: Persistent external headwinds, and stretched fiscal offset means that the

BoK could easily justify at least one more rate cut; and sooner rather than later.

Country

Next

meeting

Current

rate Last change Quantum

6M

cumulative

change

1Y

cumulative

Change

Real rate

(3mma)

Latest

inflation

(3mma)

Inflation

target^

Australia 03 Dec 0.75% 10/2019 -25 bps -75 bps -75 bps -1.0% 1.7% 2-3%

China N/A 4.35% 10/2015 -25 bps 0 bps 0 bps 1.2% 3.2% 1.5-3.5%

India 05 Dec 5.15% 10/2019 -25 bps -85 bps -135 bps 1.2% 4.0% 2-6%

Indonesia 19 Dec 5.00% 10/2019 -25 bps -100 bps -75 bps 1.7% 3.3% 2.5-4.5%

Korea 29 Nov 1.25% 10/2019 -25 bps -50 bps -25 bps 1.4% -0.2% 1.5-2.5%

Malaysia 22 Jan 3.00% 05/2019 -25 bps -25 bps -25 bps 1.8% 1.2% 2-3%

Philippines 12 Dec 4.00% 09/2019 -25 bps -75 bps -50 bps 2.9% 1.1% 2-4%

Thailand 18 Dec 1.25% 11/2019 -25 bps -50 bps -25 bps 0.9% 0.3% 1-4%

Vietnam N/A 6.00% 09/2019 -25 bps -25 bps -25 bps 3.8% 2.2% 2-6%

Singapore* Apr N/A 04/2019

Reduce

slope

"slightly" N/A N/A 1.1% 0.5% 1-2%

^ Where ranges are not explicit, we have assumed +/- 1% from inflation targets

3

G3 Central Bank Overview:

Federal Reserve (US)

Governor/ Board

Current Rate

Cumulative move since

2015* Last Move Next Move

Next Meeting

Target/ Decision

1

Jerome Powell 1.625% (Fed

Fund Rate) +150 bps

- 25 bps -25 bps 12 Dec Dual

mandate

12 members Oct 2019 Q1 2020 6 Weekly Voting

QE

Status Pace of Expansion^ B/S (% of GDP)

Mildly Expansionary

B/S expansion is now resumed. But the Fed has stressed that this is not a U-turn to resume QE, framing it as a response to tackle liquidity squeeze (focused on shorter-dated T-bills). Earlier, B/S reduction, which was initiated Q4 2017 had only gradually reduced Fed’s asset by US$700bn to US$3.8trln.

18.7%

Policy Bias

Dovish Dovish-neutral Neutral Hawkish-neutral Hawkish

^Fed started QE “taper” in Dec 2013, rate normalization in Dec 2015 and initiated B/S reduction in Oct 2017.

European Central Bank (Eurozone)

Governor/ Board

Current Rate



Next Meeting

Target/ Decision

Christine Lagarde

-0.50%/0% (Depo/Refina

ncing)

-30 bps / -5 bps

-10 bps / -5 bps

+10 bps 12 Dec Inflation

Targeting

6 members Sept 2019 Q4 2021 6 Weekly Voting

QE

Status Pace of Expansion B/S (% of GDP)

Expansionary TLTRO III (2Y tenure) commenced Sep 2019; and APP (QE) has been restarted at a pace of EUR20bn/mth.

39.6%

Policy Bias


Bank of Japan (Japan)

Governor/ Board

Current Rate



Next Meeting

Target/ Decision

Haruhiko Kuroda

- 0.10% (Policy-Rate

Balance) -20 bps

-20 bps Reduce QQE 19 Dec Inflation

Targeting

9 members Jan 2016 Q2 2021 6 Weekly Voting

QE Status Pace of Expansion* B/S (% of GDP)

Expansionary JPY 80tn/year of JGBs to be purchased 104.2%

Policy Bias


*Policy commitment though actual amount may vary month to month

The Fed appears to be done with (cumulative 75bps) insurance cuts alluding to the economy “in a

good place”. Markets concur with no more cuts for 2019. But fluid bets on 25-50bps of additional

cuts in 2020 reveals Fed calculus premised on US-China trade negotiation outcomes; which are

consistent with pain relief, but far from a panacea. So, prospects of further Fed cuts remain on

the table. In addition, B/S expansion has been resumed in response to sharp liquidity squeeze.

Draghi’s parting hat trick of easing, of; i) another 10bp rate cut and; ii) resumption of APP (QE)

adding to; iii) 2-yr TLTRO (III) is arguably front-loaded suite of insurance. But Lagarde takes over

an ECB Council more resistant to further easing and unilateral dovish signals. So the bar is higher

for further ECB easing. In contrast, the BoJ remains unequivocally dovish despite confusion over

inclination to steepen the yield curve; especially post VAT hike and in anticipation of 2020 Olympics

construction fade. Inconvenient “safe haven” JPY strength may also be something to lean against.

1 Inflation targeting refers to central bank that uses an explicit inflation as target. Dual mandate refers to central bank with

objectives to control inflation and promote growth. Discretionary refers to central bank with no explicit target.

4

Australia

Central Bank Governor/

Board Current

Rate Last Move Next Move

Next Meeting

Target/ Decision

Reserve Bank of Australia

(RBA)

Philip Lowe 0.75% (O/N Cash)

-25 bps -25 bps 3 Dec Inflation

Targeting

9 members Oct 2019 Q2 2020 Monthly Voting

Policy Bias


2015-17

(Avg) 2018

1H 2019

Q3 19

Ou

tlo

ok

Q4 19 Q1 20 Q2 20 Q3 20 Q4 20

Inflation 1.6% 1.9% 1.5% 1.7% 1.8% 2.0% 1.9% 1.8% 1.8%

GDP 2.6% 2.7% 1.5% 1.3% 1.9% 1.8% 2.4% 2.5% 2.2%

Policy Rate *

1.50% 1.50% 1.25% 1.00% 0.75% 0.75% 0.50% 0.50% 0.50%

*End of period | Forecast values in Italic

Inflation

Inflation may remain subdued (sub-2%) as sequential pick-up is narrow and crucially, demand-pull

pressures are conspicuously absent; reinforced by excess capacity. Also, nascent bottoming in

housing after a sharp correction and weak wage gains conspire to anchor, if not stifle inflationary

expectations – especially if consumers lose confidence. Upshot: Inflation re-emergence is not the

RBA’s key worry.

Growth

Growth soft patch though is a considerable worry for the RBA as near-3% growth rates dwindle to

sub-2%. Crucially, negative output gap derived from consumer confidence deficit and softening jobs

exacerbated by elevated household leverage is a prime concern. Confidence shortfall also impedes

business spending, and this appears to be driving the RBA’s precautionary easing stance.

FX

Sustained and significant AUD weakness (down ~13% since 2018) is expressly welcome by the

RBA and credited with helping with a (long overdue) rebalancing - away from the mining sector. And

insofar as the RBA attributes easier monetary conditions to a softer AUD, unexpected AUD will be

associated with compensatory policy easing, which in turn reins in AUD.

Policy

Admittedly, we had earlier underestimated the RBA’s propensity to ease; not fully anticipating sub-

1.00% policy rates. But three rate cuts (of 25bps to a record low of 0.75%) later, even the RBA is

beginning to question the cost-benefit sensibilities of more aggressively easing. To be sure,

another 25bps early next year may be on the table of external headwinds continue to seep in;

especially if jobs weaken alongside stubbornly weak wage gains. That said, prolonged pause ~ 0.50%

emerges as liquidity trap impediments arise. RBA has tempered bets on QE qualifying it is back-

up, not pipeline; even as it concedes viability if rate cut transmissions falter or back-fire.

0.0

1.0

2.0

3.0

4.0

5.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Australia (%)

CPI Core CPIPolicy Rate Lower BoundUpper Bound

Source: Bloomberg, Mizuho Bank

5

China


Board Current Rate Last Move Next Move

Next Meeting

Target/ Decision

The People's Bank of China

(PBoC)

Yi Gang 4.35% (1-Y Lending)

-25 bps -15bp - Dual

Mandate

13 members Oct 2015 Q3 2020 - Consensus

Policy Bias


2015-17

(Avg) 2018 1H 2019 Q3 19

Ou

tlo

ok

Q4 19 Q1 20 Q2 20 Q3 20 Q4 20

Inflation 1.7% 2.1% 2.2% 2.9% 3.3% 3.6% 3.2% 2.9% 2.6%

GDP 6.8% 6.6% 6.3% 6.0% 6.0% 6.0% 5.9% 6.0% 5.9%

Policy Rate*

4.35% 4.35% 4.35% 4.35% 4.35% 4.35% 4.35% 4.20% 4.20%


Inflation

“Pork-flation” cost-push, while severe, is too narrow to spark policy concerns about much broad-

based price pressures. Crucially, underlying demand pull deficiency is diametrically opposed to

bona fide inflation risks. Especially as falling industrial profits and PPI dampen wage-price

dynamics. So, even if CPI exceeds 4%, this will be transitory; not requiring a tightening response.

Meanwhile, pork-flation is best tackled by supply-side policies such as upping pork and feed imports.

Growth

Especially given brutal mix of structural and cyclical pressures on growth requires appropriate

policy support, not tightening. And concerted fiscal boost may arguably work better with easier

monetary policy. In any case, even with supportive monetary and fiscal policies, growth is set to

decline below 6% in 2020 amid soft industrial and investment impetus. Question is, how quickly.

FX

A softer CNY NEER down ~1.8% YTD is reflective of some adjustments to absorb trade and growth

headwinds but far from competitive devaluation to restore exports and/or growth. The wider point is

that PBoC is inclined to lean against excessive CNY weakness in favour of stability.

Policy

Recent repo cut of 5bps is consistent with the PBoC’s active but measured “drip feed” liquidity

management - with a suite of tools aimed at adequate, yet calibrated liquidity infusion. Fact is a

confluence of post-Lehman credit/financial risks and lingering froth in the property market demands

nuanced monetary policy support, which is in line with more productive use of capital amid SME

reforms. We see a pipeline of easing via; i) 50-100bps of RRR cuts to provide SME finance; ii) 5-

10bps increments of rate cuts and; iii) pre-emptive measures to aid credit “rollover” (so as to

avoid destabilizing credit deterioration dynamics or impede local government financing/projects).

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

China (%)

CPI, 3mma Core CPI, 3mma Policy RateLower Bound Upper Bound


6

India

Central Bank

Governor/ Board

Current Rate

Last Move Next Move Next

Meeting Target/

Decision

Reserve Bank of India

(RBI)

Shaktikanta Das 5.15% (Repo)

-25 bps - 15 bps 5 Dec Inflation

Targeting

6 members Oct 2019 Q1 2020 2 monthly Consensus

Policy Bias


2015-17

(Avg) 2018 1H 2019 Q3 19

Ou

tlo

ok Q4 19 Q1 20 Q2 20 Q3 20 Q4 20

Inflation 4.4% 4.0% 2.8% 3.5% 4.4% 4.6% 4.6% 4.5% 3.9%

GDP 7.7% 7.4% 5.4% 5.0% 5.6% 5.8% 6.7% 7.0% 6.5%

Policy * 6.00% 6.50% 5.75% 6.40% 5.15% 5.00% 5.00% 5.00% 5.00%


Inflation

While at 4.6% headline inflation remains well within the RBI’s 4+/-2% range, it has picked up more briskly than expected from ~2% lows early-2019; arguably a source of worry even this is mostly food-driven. To be sure, the worry is not so much about demand-pull inflation, but more about inflation despite the lack of demand/confidence. Upshot: Inflation is set to peak soon, well below 6% cap, with core better contained. But worries of stagflation-type dynamics have grown.

Growth

Risks of a prolonged soft spot grow given credit choke (banks’ NPLs and NBFC liquidity crunch)

compound confidence deficit and dent domestic demand. Arguably, corporate tax cuts* are welcome;

but a conspicuous tax revenue gap raises fiscal slippage worries while a coincident credit crunch

may amplify “crowding out” risks, while simultaneously dampen fiscal multipliers. Resultant

headwinds challenge impeded growth recovery (to 7-8%).

FX

Post-elections rupee boost has more than faded as the slew of rate cuts (135bps YTD) clashing with

emphatic inflation bounce erodes INR allure; as real rates decline. The consolation is that subdued

oil alleviates INR pressures. But monetary dilemma and fiscal slippage point to rupee underperformer.

Policy

The RBI’s policy tensions must not be understated. While persistent growth impediments validate the

135bps of easing this year, recent inflation resurgence, emphatic fiscal stimulus that has raised fiscal

slippage risks and rupee wobbles have inadvertently raised the bar for, and costs associated with,

additional easing. This is precisely why we had preferred a 40bps rate cut at the last meeting to lower

the policy rate to 5.00% rather than the measured 25bps cut to 5.15%; but rendering room for further

cuts precarious. Regardless, we see scope for another 15-40bp of rate cuts to as low as 4.75%;

especially if underlying inflation is contained.

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

India (%)CPI, 3mma

Core CPI, 3mma

Policy Rate

Lower Bound

Upper Bound


*Please refer to Mizuho Flash – India: Corporate Tax Rate Cut Dazzles; But is No Panacea, 20 Sep 2019

https://www.mizuhobank.com/singapore/macro/ad-hoc/pdf/MF190424_RBA_and_CPI.pdf

7

Indonesia

Central Bank

Governor/ Board

Current Rate


Meeting Target/

Decision

Bank Indonesia

(BI)

Perry Warjiyo 5.00% (7-D Reverse

Repo)

-25 bps -25 bps 24 Jan Inflation targeting

6 members^ Oct 2019 Q1 2020 Monthly Consensus*

Policy Bias


*Assumed consensus in the absence of minutes or vote count split.

^This number reflects the number of Board of Governors.

2015-2017

(avg) 2018

1H 2019

Q3 19

Ou

tlo

ok

Q4 19 Q1 20 Q2 20 Q3 20 Q4 20

Inflation 4.6% 3.2% 2.9% 3.4% 3.3% 3.7% 3.3% 3.0% 3.1%

GDP 5.0% 5.2% 5.1% 5.0% 5.0% 5.1% 5.1% 5.2% 5.3%

Policy Rate*

4.25% 6.00% 6.00% 5.25% 5.00% 4.75% 4.50% 4.50% 4.50%


Inflation

Inflation remains well-contained at around 3% given stable underlying pricing pressure across most

categories of goods. Continuous fall in inflation expectations together with steady core inflation

suggest that inflation is likely to remain benign in near future. As BI further trims inflation target to

3% for 2020, BI is expected to coordinate with the government to preserve price stability.

Growth

Household consumption continues to be the main driver of growth whilst tighter credit condition has

weighed on purchases of durable goods. Capex will probably stay under pressure amidst tepid

commodities prices given limited prospect of a quick turnaround in external demand. Evidence

of benefits from trade diversion is limited given stagnating FDI inflows. With PMI recently plunging to a

four-year low on top of moderating new orders, headwinds on growth is likely to sustain.

FX

IDR lost ground lately as market sentiment swung on conflicting US-China trade talk signals. Going

forward, IDR is expected to stay under pressure given that fiscal deficit will be much wider than

initially expected, from 1.84% of GDP to as high as 2.2%, for 2019. Consolidation plan for 2020 is

also under threat as the government intends to keep deficit flexible in order to support growth.

Policy

BI has kept policy rates unchanged while cutting RRR ratio for the second time this year by 50bps.

The bias on easing is clear and therefore we do not think that BI is done with rate cut in the

current easing cycle. Government revenue shortfall means that despite widening fiscal deficit, this

does not necessarily represent a significant expansionary fiscal stance. Furthermore loan growth

remains lackluster and this might trigger another 25-50bps rate cut next year.

2.0

4.0

6.0

8.0

10.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Indonesia (%)

CPI, 3mma Core CPI, 3mma Policy RateOld policy rate Lower Bound Upper Bound


8

Korea

Central Bank

Governor/ Board

Current Rate


Meeting Target/

Decision

Bank of Korea (BoK)

Lee Ju-Yeol 1.25% (7-D Repo)

-25 bps -25 bps 29 Nov Inflation targeting

7 members Oct 2019 Q1 2020 6 Weekly Voting

Policy Bias


2015-17

(Avg) 2018

1H 2019

Q3 19

Ou

tlo

ok

Q4 19 Q1 20 Q2 20 Q3 20 Q4 20

Inflation 1.2% 1.5% 0.6% 0.0% -0.1% 0.9% 0.9% 1.3% 1.6%

GDP 3.0% 2.7% 1.9% 2.0% 1.6% 2.3% 1.9% 2.2% 2.5%

Policy Rate*

1.50% 1.75% 1.75% 1.50% 1.25% 1.00% 1.00% 1.00% 1.00%


Inflation

Headline inflation briefly slipped to negative territory led by declines in food and transport prices on

top of consistent fall in core inflation, to just 0.5%. Furthermore, continuous fall in services

inflation show that underlying inflationary pressure is largely absent. Going forward, headline

inflation is likely to escape the negative zone as high-base effect fades. Nonetheless, with prices at

producer level turning negative, inflation is expected to hover at around 1%.

Growth

Growth remains under pressure given softening domestic demand and challenging external

environment. Though employment growth showed early signs of improvement lately, its durability and

strength may be called into question in the absence of any significant turnaround in growth

momentum. On the other hand, there are tentative green shoots as semiconductor sector is

bottoming out with demand picking up evidenced by rebound in chips shipments and billings.

FX

KRW has been one of the hardest hit AxJ currencies amidst the turn of trade sentiment from optimism

to pessimism. Though there have been nascent signs of easing manufacturing slump, this may not be

followed by a quick turnaround either. As such, BoK might still cut rates further if the green shoots

turns out to be false dawn and this might weigh on the currency.

Policy

BoK is probably done with rate cut this year after slashing it to 1.25%, matching the previous record

low. Given increasing number of dissenters in its latest rate cut decision, the central bank is expected

to stay put in near term in order to assess impact of the latest easing as well any sign of improvement

in growth prospect. Further rate cut cannot be ruled out either if chip demand fails pick up as

expected on top of tepid inflationary pressure and limited impact from expansionary fiscal policies.

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Korea (%) CPI, 3mmaCore CPI, 3mmaPolicy RateLower BoundUpper Bound


9

Malaysia


Board Current


Next Meeting

Target/ Decision

Bank Negara Malaysia (BNM)

Nor Shamsiah Mohd Yunus

3.00% (O/N

Policy)

-25 bps +25bps 22 Jan Implicit inflation

targeting

6 members May 2019 Q2 2021 6 weekly Consensus*

Policy Bias


*Assumed consensus in the absence of minutes or vote count split

2015-17 (Avg)

2018 1H

2019 Q3 19

Ou

tlo

ok

Q4 19 Q1 20 Q2 20 Q3 20 Q4 20

Inflation 2.7% 1.0% 0.2% 1.3% 1.5% 2.3% 1.8% 1.7% 1.8%

GDP 5.1% 4.7% 4.7% 4.4% 4.0% 4.1% 4.0% 4.5% 5.0%

Policy Rate*

3.00% 3.25% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00%


Inflation

Headline inflation stabilizes at around low-1% as impact from removal of GST fades. Pricing pressure

remains well-contained and stable services inflation suggests that sharp plunge is unlikely despite

mild demand-pull pressure. As the government removes retail fuel price ceiling from Jan 2020,

headline inflation may be subject to some upside risks if crude oil sustains at an elevated level.

Growth

Growth momentum continues to soften as investment has pulled back given lackluster external

environment. On the other hand, private consumption remained fairly resilient given stabilizing

employment growth supported by services sector. Going forward, measures from Budget 2020

are likely to backstop growth though room for further stimulus may be limited given a narrower deficit

target. Resilience of domestic demand and any recovery in semiconductor sector will be watched.

FX

MYR was not spared in the latest crossfire of US-China trade war. A steady increase of crude oil

prices from sub-$60 towards $60 (Brent) also helped to lend some support to the currency. Portfolio

inflows may stay cautious going forward as markets await more measures from the central

bank to keep Malaysian bonds in the FTSE index.

Policy

BNM has refrained from further easing after a pre-emptive rate cut back in May as growth moderation

has been largely in line with expectation. Going forward, though growth is still subject to downside

risks, we think BNM may pause in the current easing cycle amidst tentative signs of

improvement in semiconductor sector. Increasing volatility and upside risks in headline inflation

following the removal of retail fuel ceiling may also limit the extent of further easing.

-1.0

1.0

3.0

5.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Malaysia (%)

CPI, 3mma Core CPI, 3mma Policy Rate

Lower Bound Upper Bound


10

Philippines


Board Current


Next Meeting

Target/ Decision

Bangko Sentral ng Pilipinas

(BSP)

Benjamin Diokno

4.00% (O/N Reverse Repo)

-25 bps -25 bps 27 Feb Inflation

Targeting

7 members Sept 2019 Q1 2020 6 weekly Consensus*

Policy Bias


^While not an explicit cut, the change of policy rate constitutes a reduction in policy rate alongside lower corridor.

2015-17 (Avg)

2018 1H

2019 Q3 19

Ou

tlo

ok

Q4 19 Q1 20 Q2 20 Q3 20 Q4 20

Inflation 1.6% 5.2% 3.4% 1.7% 1.9% 3.0% 3.4% 4.1% 3.8%

GDP 6.5% 6.3% 5.6% 6.2% 6.4% 6.6% 6.6% 6.3% 6.3%

Policy Rate*

3.00% 4.75% 4.50% 4.00% 4.00% 3.75% 3.75% 3.75% 3.75%


Inflation

Headline inflation slipped to sub-1% as food prices fell on a YoY basis, mainly due to plunge in rice

prices (-10% YoY) amidst surging imports. Core inflation also slid, though by a less extent, as non-

food prices continued to edge up. Given that median inflation remains higher than the average

for the past three years, the upside risks for inflation next year have increased, especially if

growth momentum picks up further.

Growth

Growth has picked up led by construction investment as the government ramped up capital outlays.

Growth of household consumption also accelerated driven by consumer discretionary goods amidst

rebounding consumer confidence. Going forward, given that more new projects in the flagship

infrastructure project list are set to start in 6-8 months, these are likely to lift growth.

FX

PHP softened after gaining as much as 4% YTD alongside most other AxJ currencies. Given that

government intends to ramp up capital outlay amidst another year of 2019 budget validity on

top of a 12% in budgeted expenditure, fiscal and trade deficits are likely to widen again. As

such downside pressure on PHP is set to intensify.

Policy

We think that BSP is unlikely to cut its policy rate much further given that growth momentum is likely

to pick up on investment and government spending. As growth gains traction, this also flags upside

inflation risks given anticipated pickup in food inflation while proposed increase in excise taxes on

liquor and cigarette may also exert some upside pressure at the margin. As such, we expect BSP to

cut policy rate by just another 25bps in a bid to spur credit growth alongside further reduction in RRR.

-1.0

1.0

3.0

5.0

7.0

9.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Philippines (%)

CPI, 3mma Core CPI, 3mma Policy Rate

Lower Bound Upper Bound


Interest rate corridorframework was introduced

11

Thailand

Central Bank

Governor/ Board

Current Rate


Meeting Target/

Decision

Bank of Thailand

(BoT)

Veerathai Santiprabhob 1.25% (1-D

Repurchase)

-25 bps -25 bps 5 Feb Inflation

Targeting

7 members Nov 2019 Q1 2020 6 weekly Voting

Policy Bias


2015-17 (Avg)

2018 1H

2019 Q3 19

Ou

tlo

ok

Q4 19 Q1 20 Q2 20 Q3 20 Q4 20

Inflation 0.0% 1.1% 0.9% 0.6% 1.0% 1.1% 0.9% 1.4% 1.1%

GDP 3.5% 4.1% 2.6% 2.4% 2.0% 2.4% 2.7% 2.8% 2.9%

Policy Rate*

1.50% 1.75% 1.75% 1.25% 1.25% 1.00% 1.00% 1.00% 1.00%


Inflation

Headline inflation has been predominately driven by higher food prices as a result of drought and

floods while falling fuel and energy cost pushed it down towards 0%. Inflationary pressure from non-

food segment remains largely dormant. With core inflation falling consistently towards 0% as well,

inflation will probably stuck at around 1% with food price is being the main contributor.

Growth

Growth continues to stay under pressure hit by a combination of moderating domestic demand and

persistent external headwinds. As the government rolls out more stimulus packages to spur

household consumption, marginal impact may be diminishing as consumer sentiment remains

downbeat given broad-based slowdown in employment growth. Manufacturing activities are

equally lackluster evidenced by plunging raw materials and intermediate goods imports as exporters

being pressured by the Baht’s strength. As a result, growth is likely to cap at 3% in 2020.

FX

THB sustained at a multi-year high as swings in sentiment on trade talks boosted the demand for

safe-havens. As domestic demand weakened across the board, sharper plunge in imports have

pushed up trade surplus, which re-enforces THB’s safe-haven status given its sizeable C/A surplus.

Policy

BoT is expected to revise down its growth forecast in its Dec meeting as the target of 2.8% for 2019 is

clearly unattainable. Growth for 2020 is likely to be lowered too as fiscal stimulus may fail to ignite

domestic demand as much as anticipated as slowing employment raises alarm bells about future

income prospects. Further delay in approval of the budget for 2020 fiscal year may increase

risks of delay in public investment. As such, we are not ruling out the potentiality of another

25bps rate cut, especially given the strength of the Baht.

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Thailand (%)

CPI, 3mma Core CPI, 3mmaPolicy Rate Lower BoundUpper Bound


12

Vietnam


Board Current Rate Last Move Next Move

Next Meeting

Target/ Decision

State Bank of Vietnam (SBV)

Le Minh Hung 6.00% (Refinancing)

-25 bps +25 bps - Dual

Mandate

6 members^ Sept 2019 Q3 2021 - Consensus

Policy Bias


^This number reflects the number of Board of Governors.

2015-17

(Avg) 2018

1H 2019

Q3 19

Ou

tlo

ok

Q4 19 Q1 20 Q2 20 Q3 20 Q4 20

Inflation 2.6% 3.5% 2.6% 2.2% 2.8% 3.5% 3.3% 3.6% 2.9%

GDP 6.5% 7.1% 6.8% 7.3% 6.6% 6.9% 7.4% 6.8% 7.6%

Policy Rate*

6.25% 6.25% 6.25% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00%


Inflation

Admittedly, inflation has bottomed and is on the rise; but the wider inflation picture points to a

contained normalisation; with only fleeting forays above towards 5%. Fact is, non-food inflation

remains moderate, if not benign; and does not reflect imminent demand-pull risks. That said, at

incremental cost-push risks are on the rise as production to substitute for China stretches pockets

of capacity. This may not be an imminent policy worry, but does warn of emerging policy

dilemma risks.

Growth

Vietnam’s exports sector, a clear and outstanding beneficiary of US-China trade diversion, helps

buoy growth for the time being. But the growth picture is not devoid of risks. One of which is the

unevenness of growth as domestic industries underperform. And the other derives from uncertainty

about whether US might widen “America First” trade policies to Vietnam’s detriment. And so, a

relatively upbeat growth outlook of 6-7% is tempered by potential downside risks.

FX

Our sense is that a stable VND policy, essentially a lower beta version of CNY, will be pursued;

albeit with greater efforts to show the US that it does not engage in mercantilist FX policies (having

been added to the “Monitoring List” of the US Treasury in May this year).

Policy

A stable VND policy (with measured FX reserve accumulation) amid inflation pick up naturally

constrains room for the SBV to resort to headline policy easing. Instead, not unlike the PBoC, we

expect active liquidity management to help relieve stress in parts of the non-MNC industrial

economy. The sable currency policy will continue to be a critical policy complement for wider stability.

0.0

5.0

10.0

15.0

20.0

25.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Vietnam (%)CPI, 3mma

Core CPI, 3mma

Policy Rate

Lower Bound

Upper Bound


13

Singapore

Central Bank

Governor/ Board

Current Policy


Meeting Target/

Decision

Monetary Authority of Singapore

(MAS)

Ravi Menon

“Slight” S$NEER

appreciation (~0.5% p.a)

“Slightly” reduced

slope

“Slightly” steepen

slope Apr 2020

Dual Mandate

Oct 2019 Oct 2021 Bi-annual Consensus

Policy Bias


2015-17

(Avg) 2018

1H 2019

Q3 19

Ou

tlo

ok

Q4 19 Q1 20 Q2 20 Q3 20 Q4 20

Inflation -0.2% 0.4% 0.6% 0.4% 0.6% 0.8% 0.8% 1.3% 1.6%

GDP 3.2% 3.2% 0.7% 0.5% 1.1% 0.8% 1.5% 1.6% 2.0%

Policy Rate*

N.A. Slightly steepen

Status Quo

Slightly reduce

Status Quo

Status Quo Status Quo


Inflation

Even as inflation normalisation is retarded by the phased reduction in electricity costs from energy

market deregulation that is not the decisive cause of a shift in the inflation outlook. Instead, risks of

weak manufacturing spillover more widely to dampen wage gains are key restraints on inflation

expectations; especially amid a negative (albeit gradually recovering) output gap. Upshot being,

inflation is not in any real danger of materially surging past 2-2.5% in the next 12 months.

Growth

With Q3 growth now revised up to 0.5% (from 0.1%), MAS lifting 2019 growth outlook to 0.5-1.0%

(top half of the earlier 0-1% range) is more arithmetic than optimism. And 2020 forecast of 0.5-2.5%

is consistent with a gentle turnaround that the MAS has flagged, and merely narrows the negative

output gap. Whereas downside risks still linger, possibly dominate. Thus a fragile and uneven

recovery scenario would thus require policy accommodation to be maintained.

FX

Despite a “slightly” reduced S$NEER (annual appreciation bias of ~0.5%), rich S$NEER valuations

offset easing. But on the other hand, a rich S$NEER constrains SGD out-performance of other trade

basket currencies. Meanwhile, bouts of trade risks may knock SGD back (in sympathy with CNY).

Policy

MAS not fully revoking S$NEER slope in Oct reveals a fairly stoic view. So the current policy stance is

more likely to be maintained if indeed the negative output gap narrows in 2020 (as the MAS expects).

Point being, the MAS does not deem a higher level of “insurance” necessary, and so there is a

higher bar (e.g. adverse trade shocks) before the MAS doubles down. But on the other hand, a

rich S$NEER allows the MAS more time before considering normalizing in a recovery; squares

with a 2020 pause with initial bias to ease amid downside growth risks and soft inflation.

-2.0

0.0

2.0

4.0

6.0

8.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Singapore (%)CPI, 3mma

Core CPI, 3mma


14

EM Asia FX Dynamics

EM Asia/G3 FX Outlook

FX Forecasts Dec 19 Mar 20 Jun 20 Sep 20 Dec 20 Mar 21

USD/JPY104 - 110

(106)

101 - 108

(104)

100 - 107

(103)98 - 106 (102) 98 - 106 (100) 98 - 108 (100)

EUR/USD1.08 - 1.13

(1.11)

1.10 - 1.15

(1.13)

1.10 - 1.16

(1.14)

1.11 - 1.17

(1.15)

1.12 - 1.18

(1.16)

1.11 - 1.18

(1.16)

USD/CNY6.92 - 7.22

(7.05)

6.95 - 7.27

(7.12)

6.90 - 7.14

(7.02)

6.75 - 7.03

(6.94)

6.72 - 7.04

(6.92)

6.53-6.83

(6.64)

USD/INR69.0 - 74.6

(71.2)

69.6 - 75.3

(72.4)

68.4 - 72.5

(70.3)

66.3 - 71.2

(69.4)

65.4 - 70.9

(68.5)

65.5-70.5

(68.0)

USD/KRW1160 - 1240

(1190)

1180 - 1270

(1220)

1150 - 1220

(1180)

1110 - 1190

(1160)

1080 - 1170

(1130)

1070 - 1140

(1110)

USD/SGD1.32 - 1.40

(1.36)

1.33 - 1.42

(1.38)

1.34 - 1.40

(1.37)

1.30 - 1.37

(1.35)

1.29 - 1.38

(1.35)

1.31-1.37

(1.34)

USD/IDR13600 - 14900

(14100)

13600 - 14300

(14300)

13600 - 14100

(14050)

13200 - 14000

(13950)

13300 - 14100

(14050)

13200 - 13900

(13850)

USD/MYR4.06 - 4.36

(4.18)

4.08 - 4.38

(4.23)

4.06 - 4.28

(4.16)

3.92 - 4.18

(4.08)

3.87 - 4.17

(4.04)

3.62 - 3.85

(3.76)

USD/PHP49.9 - 54.0

(51.5)

50.9 - 55.2

(53.0)

50.1 - 53.2

(51.5)

48.0 - 51.7

(50.3)

47.2 - 51.3

(49.5)

46.8 - 50.2

(48.8)

USD/THB29.7 - 31.2

(30.3)

30.4 - 32.0

(31.2)

29.9 - 31.0

(30.4)

29.0 - 30.3

(29.8)

29.4 - 31.0

(30.3)

29.3 - 30.6

(30.1)

USD/VND22700 - 23800

(23200)

22700 - 23900

(23350)

22700 - 23600

(23180)

22200 - 23300

(22980)

22100 - 23300

(22880)

22500 - 23500

(23160)

AUD/USD0.667 - 0.730

(0.685)

0.648 - 0.708

(0.670)

0.689 - 0.736

(0.705)

0.689 - 0.741

(0.715)

0.702 - 0.765

(0.730)

0.754 - 0.810

(0.780)

15

Appendix

Inflation – Growth Snapshot

Exchange Rate – Equities Snapshot

Growth Outlook

Inflation Outlook

Country

Next

meeting

Current

rate

Latest

inflation

(3mma)

Inflation

target^

CPI 12m

trend

3Y rolling

avg

Latest core

inflation

(3mma)

Latest GDP

growth

3Y rolling

avg

Australia 03 Dec 0.75% 1.7% 2-3% 1.8% 1.6% 1.2% 2.4%

China N/A 4.35% 3.2% 1.5-3.5% 2.0% -0.3% 6.0% 6.6%

India 05 Dec 5.15% 4.0% 2-6% 3.5% 3.2% 5.0% 7.0%

Indonesia 19 Dec 5.00% 3.3% 2.5-4.5% 3.4% 3.3% 5.0% 5.1%

Korea 29 Nov 1.25% -0.2% 1.5-2.5% 1.3% 0.6% 2.0% 2.6%

Malaysia 22 Jan 3.00% 1.2% 2-3% 1.9% 1.6% 4.4% 5.0%

Philippines 12 Dec 4.00% 1.1% 2-4% 3.5% 2.7% 6.2% 6.3%

Thailand 18 Dec 1.25% 0.3% 1-4% 0.8% 0.5% 2.4% 3.6%

Vietnam N/A 6.00% 2.2% 2-6% 3.3% 2.0% 7.3% 6.9%

Singapore* Apr N/A 0.5% 1-2% 0.5% 0.7% 0.5% 2.8%

^ Where ranges are not explicit, we have assumed +/- 1% from inflation targets

Country

Next

meeting

Current

rate Currency

FX 1m

change

FX YTD

change

NEER YTD

change Stock Exchange

1m

change

YTD

change

Australia 03 Dec 0.75% AUD -0.7% -3.7% -4.2% ASX 1.4% 21.0%

China N/A 4.35% CNY 0.6% -2.1% -2.2% Shanghai SE -1.8% 16.4%

India 05 Dec 5.15% INR -0.8% -2.4% 1.0% Sensex 4.0% 13.2%

Indonesia 19 Dec 5.00% IDR -0.5% 2.1% 3.4% JCI -3.5% -2.6%

Korea 29 Nov 1.25% KRW -0.4% -5.1% -4.1% Kospi 2.0% 4.3%

Malaysia 22 Jan 3.00% MYR 0.0% -1.2% 0.3% KLCI 1.0% -6.2%

Philippines 12 Dec 4.00% PHP 0.4% 3.3% 3.1% PSE -1.9% 4.1%

Thailand 18 Dec 1.25% THB -0.1% 7.7% 8.7% SET 1.0% 2.9%

Vietnam N/A 6.00% VND 0.0% -0.1% Ho Chi Minh SE -2.0% 9.4%

Singapore* Apr N/A SGP -0.2% -0.2% 0.8% STI 0.9% 4.8%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

China 6.4 6.2 6.0 6.0 6.0 5.9 6.0 5.9 6.2 6.0 5.8

India 5.8 5.0 5.0 5.6 5.8 6.7 7.0 6.5 5.4 6.5 7.2

Korea 1.7 2.0 2.0 1.6 2.3 1.9 2.2 2.5 1.8 2.2 2.7

Singapore 1.1 0.2 0.5 1.1 0.8 1.5 1.6 2.0 0.7 1.5 2.4

Malaysia 4.5 4.9 4.4 4.0 4.1 4.0 4.5 5.0 4.4 4.4 4.7

Indonesia 5.1 5.1 5.0 5.0 5.1 5.1 5.2 5.3 5.1 5.2 5.3

Thailand 2.8 2.3 2.4 2.0 2.4 2.7 2.8 2.9 2.4 2.7 3.3

Philippines 5.6 5.5 6.2 6.4 6.6 6.6 6.3 6.3 5.9 6.5 6.7

Vietnam 6.8 6.7 7.3 6.6 6.9 7.4 6.8 7.6 6.9 7.2 7.3

Australia 1.8 1.2 1.3 1.9 1.8 2.4 2.5 2.2 1.5 2.2 2.5

2020

2020 20212019Country

2019

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

China 1.8 2.6 2.9 3.3 3.6 3.2 2.9 2.6 2.7 3.1 2.6

India 2.5 3.1 3.5 4.4 4.6 4.6 4.5 3.9 3.0 4.4 3.7

Korea 0.5 0.7 0.0 -0.1 0.9 0.9 1.3 1.6 0.3 1.2 1.4

Singapore 0.5 0.7 0.4 0.6 0.8 0.8 1.3 1.6 0.6 1.1 1.9

Malaysia -0.3 0.6 1.3 1.5 2.3 1.9 1.9 1.8 0.8 2.0 2.3

Indonesia 2.6 3.1 3.4 3.3 3.7 3.3 3.0 3.1 3.1 3.3 3.5

Thailand 0.7 1.1 0.6 1.0 1.1 0.9 1.4 1.1 0.9 1.1 1.4

Philippines 3.8 3.0 1.7 1.9 3.0 3.4 4.1 3.8 2.7 3.6 3.5

Vietnam 2.6 2.7 2.2 2.8 3.5 3.3 3.6 2.9 2.6 3.3 3.6

Australia 1.3 1.6 1.7 1.8 2.0 1.9 1.8 1.8 1.6 1.9 2.2

20212019

2019Country2020

2020

16

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Documents

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