When Will Asian Central Banks Start Monetary Tightening?
Most central banks in the region will keep interest rates on hold through 2009 due to the fragile and uncertain economic recovery and subdued core inflation. If continued capital inflows fuel asset bubbles and raise domestic liquidity, central banks will raise the bank reserve requirements, conduct open market operations and implement measures directly targeting the asset markets during H2 2009 and early 2010, before they start hiking interest rates. In 2010, if commodity prices pick up swiftly and exports recover, central banks might allow exchange rate appreciation to control headline inflation. Countries witnessing faster economic recovery and/or vulnerable to asset bubbles and commodity prices, such as South Korea, China, India, Vietnam and Indonesia, will start tightening monetary policy aggressively in H1 2010. They will be followed by Thailand and the Philippines. Countries experiencing a weaker recovery and larger output gaps, such as Malaysia, Singapore, New Zealand and Taiwan
