Expectations that emerging Asia central banks are reaching the peak of their interest-rate hike cycles got another boost after the Reserve Bank of India surprised markets by standing pat on policy, in a bullish sign for the region’s bonds.
(Bloomberg) — Expectations that emerging Asia central banks are reaching the peak of their interest-rate hike cycles got another boost after the Reserve Bank of India surprised markets by standing pat on policy, in a bullish sign for the region’s bonds.
The RBI kept the benchmark repurchase rate unchanged at 6.5% after hiking in its six straight previous meetings. That’s in line with policy makers in South Korea, Malaysia and Indonesia that have maintained the rates status quo in at least one decision. Lower-than-expected inflation readings in emerging Asia this week have also backed trader bets that some central banks are done with raising rates for now.
“The peak-rates angle in Asia is probably marginally more supportive here, as central banks are stopping because they see waning domestic and external price pressures, rather than from rising financial risks,” said Galvin Chia, a strategist at NatWest Markets in Singapore. “Owning unhedged bonds is quite attractive amid US rates which are capped, the recent trend of weaker US data, and a correspondingly weaker dollar trend.”
Emerging-Asia bonds returned 2.45% in the first three months of 2023, building on 4.2% gains in the final quarter of last year, according to a Bloomberg index. India’s benchmark 10-year yields fell 6 basis points to 7.21% after the Indian central bank’s decision.
Only six of 33 economists surveyed by Bloomberg forecast that the RBI will hold rates steady, with the rest expecting a quarter-point increase. While Governor Shaktikanta Das pledged at a news conference that the central bank would hike again if needed, bond bulls are seeing the rate-hold decision as a sign that rates may have reached their peak.
Other central banks in the region have put their rate-hike cycles on pause. Bank of Korea policy makers held rates at 3.5% at their most recent decision in February, and are expected to do the same at their next meeting on April 11. Bank Negara Malaysia and Bank Indonesia have both left benchmark rates unchanged for two straight decisions. BI governor Perry Warjiyo, for his part, signaled in January that the cumulative rate hikes were adequate to slow inflation.
March headline inflation data from Indonesia, South Korea, Thailand and the Philippines all undershot estimates this week, bolstering peak-rate expectations. Consumer-price increases in Thailand eased, entering the central bank’s inflation targeting band for the first time since December 2021.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.