Inflation Diverges in Southeast Asia's Two Biggest Economies

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Inflation in Southeast Asia’s two biggest economies, Indonesia and Thailand, diverged in March, putting the two nations on possibly different monetary policy courses.

Consumer-price growth in Indonesia eased to 2.48 percent last month, below the central bank’s 2.5 percent to 4.5 percent target band, while in Thailand, inflation quickened to a six-month high of 1.24 percent, climbing back into the 1 percent to 4 percent range.

Inflation Diverges in Southeast Asia's Two Biggest Economies

The data gives the Bank of Thailand reason to stick to a more hawkish stance, while in Indonesia, the figures back up policy makers’ shift to a pause after last year’s interest-rate hikes. Thailand’s central bank raised its benchmark interest rate once last year to 1.75 percent in December, with Governor Veerathai Santiprabhob saying on Monday it’s still low compared to peers.

Inflation Diverges in Southeast Asia's Two Biggest Economies

After raising interest rates by 175 basis points in 2018, Bank Indonesia has kept its policy rate unchanged at 6 percent this year ahead of April’s election.

“This is the best data that any economic policymakers could get -- the decline in food prices accompanied by the robust core inflation that is indicative of a still healthy purchasing power,” Satria Sambijantoro, an economist at PT Bahana Sekuritas in Jakarta, said referring to Indonesia’s easing inflation.

Bank Indonesia Maintains Tight Monetary Policy Stance: Waluyo

Still, the implications of subdued prices are less straightforward for Bank Indonesia’s monetary policy as it comes out as a external balance-targeting monetary authority and not sticking with the conventional inflation-targeting framework adopted by most central banks in the emerging economies, Sambijantoro said.

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