Mixed Inflation Data No Deterrent to Southeast Asia Rate Cuts

(Bloomberg) --

Inflation data in Southeast Asia’s two biggest economies painted a mixed picture in August, though price pressures were subdued enough to allow central banks to continue cutting interest rates.

Consumer prices in Thailand rose 0.52% in August from a year earlier, their slowest pace in seven months and well below the central bank’s target range of 1% to 4%. In Indonesia, inflation accelerated to a 20-month high of 3.49%, though still within the central bank’s 2.5%-4.5% target.

Given the subdued inflation backdrop, central banks have shifted their focus this year to supporting economic growth. Both countries already have cut interest rates in recent months to shore up their economies as U.S.-China trade tensions drag down global growth.

Rate cuts are a more pressing need in Thailand, while greater external risks constrain Indonesia’s ability to ease policy too aggressively, said Euben Paracuelles, an economist at Nomura Holdings Inc. in Singapore.

The divergence in August inflation readings “met our expectations and supports our monetary policy rate forecasts that the Bank of Thailand is likely to cut again in September while Bank Indonesia could pause,” he said. “This also shows that the growth outlook in Thailand remains downbeat, while it is more resilient in Indonesia.“

Downbeat Sentiment

The inflation numbers followed data Monday showing manufacturing sentiment remains in the doldrums across much of Asia amid the ongoing trade war. On Sunday, higher U.S. tariffs on roughly $110 billion in Chinese imports took effect, as did Beijing’s retaliatory duties on U.S. goods.

Thailand’s government approved a $10 billion stimulus package last month to boost growth from an almost five-year low in the second quarter. The Bank of Thailand delivered a surprise rate cut in August, and Finance Minister Uttama Savanayana said last week there’s room for further easing.

In Indonesia, authorities are prepared to take emergency action to support the economy if global conditions worsen, while the central bank governor has signaled further rate cuts are in the pipeline after two cuts already this year.

--With assistance from Suttinee Yuvejwattana.

To contact the reporter on this story: Karlis Salna in Jakarta at ksalna@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Michael S. Arnold

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