ASEAN central banks are expected to tighten their respective monetary policy in the next 12 months as inflationary pressure grows, Moody’s Investors Service said today.  

It said in a statement that pressure is growing on Asean central banks to curb price increases as weakening local currencies cause inflationary pressure on import prices and exacerbate capital outflows.

“Continuing supply constraints also increase inflationary pressure. Forward guidance from most Asean central banks is that they expect to raise interest rates in the second half of 2022,” it said.

Moody’s today released a sector in-depth report focusing on six Asean economies, namely Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.

According to the report, relatively benign inflation in Asean countries has enabled central banks in the region to prioritise economic recovery over monetary tightening.

“Interest rate hikes will lead to a widening of banks’ net interest margins. However, asset risks for banks also increase when interest rates rise.

“We expect interest rate hikes in the region will be gradual and growth in problem loans will be modest,” it added.

Moody’s said the increases in non-performing loans (NPLs) will be modest across the Asean region because inflationary pressure will abate in all six economies in 2023 and the pace of rate hikes will be gradual.

“An acceleration of inflation has historically resulted in increases in NPLs in five of the six systems because inflation typically results in an economic slowdown, with consequent rises in interest rates increasing debt repayment burdens for borrowers.

“Among banks in the six Asean economies, those in Thailand and Vietnam would be most vulnerable to a sharp increase in interest rates because borrowers in these banking systems are the most indebted,” said Moody’s. – Bernama, August 29, 2022.