The Week Ahead: Asian monetary policy, US-Taiwan Monterey Talks in focus

This article first appeared in The Edge Malaysia Weekly, on June 20, 2022 - June 26, 2022.
The Week Ahead: Asian monetary policy, US-Taiwan Monterey Talks in focus
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In focus this week is the response of Asian central bankers to the 75-basis-point increase in the benchmark federal funds rate by the US Federal Reserve, as well as developments in the US-Taiwan annual security talks, referred to as the Monterey Talks.

With the US Federal Open Market Committee (FOMC) having raised the key rate to a target of between 1.5% and 1.75%, in its largest hike for a single meeting dating back to 1994, all eyes will be on how Asian central banks react as China, Indonesia and the Philippines will be releasing their respective monetary policy decisions.

China’s May one-year and five-year loan prime rate (LPR) fixings will be announced on Monday (June 20). The 5Y LPR was set lower by a record 15bps to 4.45% in May but the 1Y rate was unchanged at 3.70%.

“We think an easier monetary policy stance would still be needed despite some signs that the outlook is stabilising. There is room for the 1Y LPR to move lower to 3.65% in June and 3.55% by end-3Q2022 following its easing measures,” states Alvin Liew of UOB’s Global Economics & Market Research in a report last Friday.

Bloomberg surveys of analysts on the 1Y and 5Y LPR shows that largely no change is expected.

Bank Indonesia will be releasing its monetary policy rate on June 23. According to Bloomberg, five analysts expect BI to stay put on 3.5%, while the rest expect a 25bps hike to 3.75%.

On the same day, Bangko Sentral ng Pilipinas (BSP) will also be releasing its policy rates and is expected to raise its rates. A Bloomberg poll has three analysts projecting a 25bps hike to the overnight repo rate to 2.5%, and four analysts anticipating a more aggressive 50bps hike to 2.75%.

Globally, inflation will continue to take centre stage. Inflation data for Singapore, Malaysia and Hong Kong will be out this week. Singapore’s May Consumer Price Index (CPI) data will be released on Thursday (June 23), with Bloomberg’s estimate pegging it at 0.9% month on month and 5.4% year on year. Core inflation in the city state is likely to edge higher to 3.5% y-o-y, from 3.3% in April, according to UOB estimates.

Hong Kong will be announcing its May CPI on June 21, and Malaysia on June 24. Vietnam will be releasing its June CPI data on June 25, while Taiwan will announce its May industrial production data on June 23.

In the developed world, attention will be on FOMC chair Jerome Powell’s semi-annual testimony on the monetary policy report before US lawmakers. He will first appear before the Senate Committee on Banking, Housing and Urban Affairs on June 22, and then to the House Committee on Financial Services the next day.

In Europe, European Central Bank president Christine Lagarde will speak before the Committee on Economic and Monetary Affairs of the European Parliament in Brussels on June 20.

Among the Group of Seven countries, focus will be on the June preliminary Markit manufacturing and services Purchasing Managers’ Index (PMI) surveys for the US, UK, eurozone and its constituent economies, as well as Japan’s Jibun manufacturing and services PMI surveys on June 23.

According to UOB, the indices are broadly expected to ease lower but still stay above the 50 level, which indicates expansion in overall activity. An exception could be the services PMI for the US, which may be lifted a bit higher, the bank opines.

The EU Leader’s Summit will take place on June 23 and 24 in Brussels with topics of discussion to revolve around the Ukraine situation and its many consequences. Thereafter, the G7 Leaders’ Summit will convene in Schloss Elmau, Krün, Bavarian Alps, Germany, from June 26 to 28.

Meanwhile, cross-strait relations could be in focus as Taiwan and the US convene a high level security meeting over June 20 to 22 in Washington and Annapolis, Maryland. Taiwan’s National Security Council secretary-general Wellington Koo is expected to attend the high-level talks — known as the Monterey Talks.

In Malaysia, the 1Malaysia Development Bhd-Tanore trial continues this week before judge Datuk Collin Lawrence Sequerah with the continuation of testimony by Wedani Senen, manager at AmBank’s SWIFT unit, on deposits into former premier Datuk Seri Najib Razak’s personal accounts at the bank.

Former second finance minister Datuk Seri Ahmad Husni Hanadzlah and former Ministry of Finance deputy secretary-

general Datuk Siti Zauyah Mohd Desa are also slated to be cross-examined.

Najib is charged with four counts of abuse of power in enriching himself with RM2.3 billion of 1MDB funds and 21 counts of money laundering of the same amount. He could face a fine and up to 20 years’ imprisonment if convicted.

On Thursday, Lim Guan Eng’s graft trial is set to continue before Sessions Court judge Azura Alwi. Among the charges he faces is using his position as Penang chief minister to accept bribes of RM3.3 million in return for assisting Consortium Zenith BUCG Sdn Bhd to secure a construction project worth RM6.3 billion.

On Friday, judge Mohamed Zaini Mazlan will decide on the prosecution’s application to call former 1MDB president and CEO Arul Kanda Kandasamy as a witness to testify against Najib in the 1MDB audit report tampering trial.

In the corporate sector, Astro Malaysia Holdings Bhd is expected to announce its financial results for the quarter ended April 30 on June 22, followed by SYF Resources Bhd and Magni-Tech Industries Bhd on June 23, and Gamuda Bhd and United Malacca Bhd on June 24, and Yinson Holdings Bhd and MyNews Holdings Bhd the day after.

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