Inflation and monetary policy in Southeast Asia

Central banks across Asia have been raising interest rates in a bid to contain surging consumer prices, but recent signs that inflationary pressures may be peaking have prompted some policymakers to put further tightening on hold or use other tools to keep prices in check.
Thailand raised rates last month for the seventh time since last July to curb mounting price pressures, and economists expect it to tighten again later this month. The Philippines kept interest rates steady last month after two consecutive increases, but it lifted bank reserves. Indonesia, which kept rates steady in June, looks set to keep using its currency to curb imported inflation this year.
Malaysia raised interest rates in May while Vietnam, which is struggling to prop up its currency after a surge in inflation, lifted one of its key interest rates again in May. Singapore tightened monetary policy in April, using currency strength to fight inflation. Below is a snapshot of Southeast Asian inflation trends and how policymakers are responding.
THAILAND: Annual headline inflation dipped to 4.06 percent in June from 4.19 percent in May, but the core rate edged up to 2.55 percent from 2.48 percent in May, data on July 1 showed, reinforcing expectations of another rate rise later this month.
Core inflation was at the highest level since September 2008 and towards the top end of the central bank's target range of 0.5-3.0 percent, which guides monetary policy. Economists expect the central bank to tighten policy again at its meeting on July 13 after seven increases since last July, when it pushed up the rate from a record low of 1.25 percent. The central bank forecast headline inflation of 3.9 percent for 2011 and core inflation of 2.3 percent, but it warned core inflation could at some point go above the top end of the target range and that it is worried about spending after the July 3 election.
INDONESIA: Annual inflation slowed to a one-year low of 5.54 percent in June from 5.98 percent in May, well within the central bank's target and strengthening expectations Bank Indonesia will hold rates this month and potentially for the rest of the year.
Bank Indonesia looks set to keep using its currency to dampen imported inflation this year, and to lag rate rises by regional peers who appear likely to go for further tightening to counter price pressures.
The central bank held its benchmark interest rate at 6.75 percent on June 9, having kept the rate steady since an increase of 25 basis points in February, the first in two years. VIETNAM: Annual inflation rose to 20.82 percent in June, its fastest annual pace since November 2008, after 19.78 percent in May, but the rise in consumer prices slowed on a monthly basis, data on June 24 showed. Vietnam has responded to the surge in inflation with a string of measures since February, including several increases in policy rates, lower credit growth goals and commitments to rein in spending.
It raised the rate it charges on open market operations again on May 17. The rate has been raised 800 basis points since early November. The Asian Development Bank said it saw a bit of room left for policy rate increases and that it expected monthly inflation to start to come down this month and double-digit annual inflation to begin to ease in August.
MALAYSIA: Annual inflation rose to 3.3 in May from 3.2 percent in April, data on June 24 showed, matching market expectations, but economists said price pressures would pick up further and strengthen the case for another interest rate rise this year. On May 5, the central bank raised its policy rate by 25 basis points to 3 percent to fight inflation and ordered banks to set aside more money in reserve.
SINGAPORE: Singapore's annual inflation was steady at 4.5 percent in May, above the median forecast from economists but below the highs of the first quarter, data showed on June 23, and analysts said they did not expect the central bank to tighten policy further. The central bank's core inflation measure rose 2.1 percent year-on-year following a 2.2 percent rise in April. Officials said last month that year-on-year inflation peaked in the first quarter.
The central bank tightened monetary policy at its April policy review by sanctioning an immediate rise in the value of the Singapore dollar and maintaining its preference for a gradual and moderate appreciation in the currency. Singapore manages monetary policy by steering the local dollar against a basket of currencies.
THE PHILIPPINES: The Philippine central bank held interest rates steady on June 16, judging that risks of a global slowdown and signs of moderation in inflationary pressures meant it could pause after raising rates at its previous two meetings.