Will Malaysia rate rise set off SE Asia hikes?

Analysts say Malaysia’s regional neighbours will focus on domestic factors to determine when to raise interest rates

Central banks in Southeast Asia are set to stick to their current monetary policy course rather than change tack after Malaysia last week surprised markets by raising interest rates.

The Malaysian central bank increased its rate to 2.25 per cent from a record low of 2 per cent, arguing the move would help avoid the risk of economic imbalances later on.

Analysts say Malaysia’s regional neighbours will focus on domestic factors to determine when to raise interest rates for the first time following the global economic crisis.

Thailand’s central bank left its policy rate unchanged on Wednesday, saying Malaysia was one factor among many for policymakers to consider. The Philippines central bank meets on Thursday and is expected to leave rates steady as well.

Malaysia last week became the first central bank in Asia outside Australia to increase rates as part of efforts to unwind crisis measures.

ANALYST VIEWS

(The comments were made before Thailand’s rate decision)

DAVID COHEN, ECONOMIST, ACTION ECONOMICS IN SINGAPORE:

“I don’t think that they will be prompted to tighten in meetings this week in Thailand, or Philippines. It’s certainly got their attention, the fact that people in the market are talking about it. Maybe it helped to test the waters for these folks and I think it’s consistent with the mainstream expectation that sometime in mid-year, they will tighten rates.

They can start using the same rationale as Malaysia’s central bank governor - the normalisation after an extended period of accommodative rates.”

PRAKRITI SOFAT, REGIONAL ECONOMIST, BARCLAYS IN SINGAPORE “No, I think each country has its own set of factors that are driving what they will do. Indonesia may begin its tightening cycle in late Q2, we see 100 basis points for the year but risks are biased to later and lesser. But based on BNM (Malaysia) they won’t be changing their rate outlook.”

FREDERIC NEUMANN, REGIONAL ECONOMIST, HSBC IN HONG KONG: “For the Philippines, I doubt it (Malaysia’s action) has had any major impact, in part because economic data has been far softer in Philippines compared to Thailand and Malaysia.

For that reason, no imminent move by the BSP (Philippines) and the BSP might even hold through the second quarter. There is some tinkering at the edges to remove the emergency measures put in place, but that has to be distinguished from outright rate hike as seen in Malaysia.”

NUCHJARIN PANARODE, ECONOMIST, CAPITAL NOMURA IN THAILAND: “Our house has already expected other central banks in the region to start raising rates in the second quarter as rates are too low, not because of Malaysia’s rate rise. But that may increase the likelihood of rate hikes elsewhere.”

VISHNU VARATHAN, ECONOMIST, FORECAST PTE IN SINGAPORE:
“On the radar now is India. If you’re talking of countries that probably need to normalise, we have a whole list of them.

But given the mix of inflation data as well as growth pick up , conditions are appropriate and most pressing in India. China is also not too far off.”

USARA WILAIPICH, ECONOMIST, STANDARD CHARTERED IN THAILAND: “The impact is limited given implementation by central banks in any country will more depend on specific local factors, mainly on speed of economic recovery, inflation pressures, and any evidence of asset price bubbles.”