Research Briefing | Jan 11, 2023

Untangling financial conditions in the ASEAN-5

Financial conditions have deteriorated across ASEAN-5 economies to varying degrees. As well as monetary tightening, a broad depreciation of currencies and rising long-term rates are weighing on financial conditions generally across the region.

What you will learn:

  • The Philippines, where our financial conditions index is the tightest among the five economies, is also where the central bank has tightened policy most aggressively. Long-term rates have risen the most since the start of 2022, while the Philippines’ peso and equity prices have underperformed.
  • Financial conditions in Indonesia have not tightened as much as its recent rate hikes would suggest, due to an outperforming equity market and relatively limited depreciation in its currency given the current account surplus. Meanwhile, the FCI for Singapore is still relatively loose as the fall in credit growth has been more than offset by stable equity prices, low long-term rates, and a resilient currency.
  • Though we expect financial conditions will gradually ease in 2023, a broad deterioration in our index supports our baseline forecast of slower private domestic demand growth across the ASEAN-5 economies in the coming quarters.
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