Monetary Policy in Asia
It’s been a mixed year as far as Asian monetary policy goes. We would like to have seen, based on our analysis of real lending rates and monetary aggregates, India, Thailand and Indonesia cut policy rates more aggressively. The central banks of India and Indonesia have delivered further rate cuts in 2017 but not enough. India’s RBI is falling increasingly behind the curve. By contrast, in a widely anticipated move, the Bank of Korea begun in the process of interest rate normalisation last month.However with the New Year fast approaching, it is redundant talking about 2017 now, of what might have been. Thus in Asianomics Special Report No.7/2017, Monetary policy in Asia, we turn to 2018 to examine monetary policy across the region and look at prospects for interest rate adjustments next year. We expect India to cut policy rates further in 2018 and for the Philippines, Korea and possibly Malaysia to raise. Elsewhere we expect no change to current monetary policy stances. With a few exceptions, Asian real lending rates are at appropriate levels for where individual countries are in their respective business cycles. Asia does not have an excess liquidity problem and regional credit cycles remain in good shape, with most, including China’s, in early stages of recovery.
These are the broad conclusions. We will leave you to read the report for the details, including how we assess the appropriateness of monetary policy setting.
Asianomics, founded by Dr Jim Walker in 2007 and based in Hong Kong, specialises in economic analysis research, cross-referencing their work with credit cycles, profit cycles and cash flows. Asianomics focus is on developments in the Asia-Pacific region, and they also cover developed markets like the US and Europe.
The Austrian Economics model provides a framework for the economic research. The basis of the School of Austrian Economics is that economies work more efficiently and effectively when companies and individuals are free from excessive interference by government and special interest groups. The Asianomics economic research team includes Deputy Chief Economist Sharmila Whelan who is recognised for non-consensus thinking and her depth and quality of primary research, and Chief Economist Dr. Jim Walker.
Asianomics’ subscribers have access to regular economic commentary, stand-alone Country Reports, Special Reports and Investment Strategy Reports. Dr. Jim Walker also provides weekly webcasts.
Dr. Jim Walker is regarded as one of Asia’s leading economists. Prior to setting up Asianomics, he was the Chief Economist at CLSA Asia-Pacific Markets, where he worked for more than 16 years. He has achieved numerous ‘Best Economist’ rankings in the Asiamoney, Institutional Investor and Greenwich surveys of fund managers.
Previous successful calls include:
- In 1995 Dr. Jim Walker wrote about the prospect of Asia being forced off its de facto dollar peg “within the next two-three years”. The Asian Crisis, precipitated by the Thai baht devaluation, began in July 1997.
- Forecasted the US 2007 downturn and financial sector meltdown in series of ‘Apocalypse’ reports.
- Called early the upswing in the Indian stock market in the final quarter of 2013.
Recent Recommendations:
- Overweight China - We are overweight Chinese equities with momentum improvement in the economy.
- Short Sterling, Long Renminbi - China’s currency offers good upside with a positive carry.
- Short European Financials, Long Indian Financials - This is the simplest pair trade to play superior demographics and growth in Asia relative to the region with the biggest problems.
- Long EM Asia, Short Developed countries - South and SE Asia, and direct investors from North Asia, are ‘buy and hold’ investment bets.
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