Asia week ahead: Central bank meetings in the spotlight

The last data dump of the year will be released next Monday. We are looking for the key economic data indicators to continue to recover modestly on the month, with industrial production rising to 5.6% year-on-year, retail sales continuing to accelerate to 5.1% YoY, and fixed asset investment (FAI) likely to remain steady, potentially with a minor uptick to 3.5% YoY year-to-date.

After last month’s relatively encouraging property price data, we will also be watching this month’s gauge to see if there are more signs of bottoming out – signs such as more Tier 1 and 2 cities stabilising or seeing price increases, or an overall slower rate of decline across the 70-city sample would be welcomed by markets.

We expect Bank Indonesia to leave its policy rate unchanged at 6%. Risks to inflation remain muted, with the most recent headline CPI inflation reading at 1.5% YoY. However, the Indonesian rupiah has fallen by 1.5% vs the US dollar in the last month and we think that BI is therefore likely to tread cautiously in its rate cutting cycle while focusing on IDR stability.  

The Bank of Japan meets on Thursday. Even if it is a close call, we expect a hike next week as the recently released data (solid cash earnings, higher-than-expected inflation, and upward revisions to GDP) support the hike decision.

We think that incoming business surveys, trade and inflation data will also signal a recovery of the economy. Market expectations for a December hike have been fluctuating a lot, and currently there is only a 19% chance of a rate hike at the December meeting. Last month, BoJ Governor Kazuo Ueda mentioned that hikes are nearing, and one of the board’s most dovish members said that wouldn't be opposed to rate rises if they're proposed. However, one local wire reported that there is a growing view that a premature rate hike should be avoided unless there is a significant risk of inflation rising.

Bangko Sentral ng Pilipinas is likely to cut rates by 25bp, taking the overnight borrowing rate to 5.75% and the overnight deposit facility rate to 5.25%. The real policy rate of 3.5% is at an all-time high, while GDP growth is expected to remain below the government’s target of 6-7%.