The terminal policy rate is in sight for India
Recent developments strengthen our view that India’s inflation has passed its peak. The steep rise in headline CPI that began in late 2021 was largely driven by imported inflation due to supply chain issues and sky rocketing commodity prices following Russia’s invasion of Ukraine. These pressures are now retreating.
What you will learn:
- We expect the Reserve Bank of India (RBI) will hike another 35bps-50bps at its meeting this month. We think the bounce back in India’s CPI to 7% in August and a hawkish US Federal Reserve justify the move.
- However, beyond that, easing supply bottlenecks and a much weaker growth outlook have diluted the case for further aggressive tightening. We expect the RBI to deliver a final 25bps hike in Q4 and then pause for most of 2023.
- We expect CPI inflation to gap lower from Q2-2023 after having hovered around 7% for a short period. This reflects our view of quicker easing of supply constraints and external price pressures next year, facilitated by weakening demand.
Slowdown in 2023, except for Chinese cities
Growth across advanced Asia Pacific cities is slowing down in 2022's second half, and their full-year growth rates will trend downwards in 2023. In emerging Asian cities, we expect an uptick in growth in 2022, followed by a marked weakening in 2023.Find Out More
APAC central banks look to anchor expectations rather than follow Fed
We expect a limited increase in policy rates across Asia, and most central banks are unlikely to match the Fed’s likely aggressive tightening. While the near-term imperative is to keep inflationary expectations anchored, the medium-term goal is to promote growth as there is still significant slack in most Asian economies.Find Out More
China: A lopsided recovery to further deepen Covid scarring
We have cut our China growth forecast to 3.2% in 2022, from 4% previously, reflecting dismal Q2 growth and the absence of new stimulus. The bigger issue, however, is China’s dynamic zero-Covid policy, which, as long as it persists, seems likely to crimp private-sector growth.Find Out More