Economic and Financial Market Highlights

With spare capacity, inflation remains in check across the region, although higher food prices and base effects are causing year-on-year CPIs to rise in some cases. Central banks will be watching these trends carefully in the coming months. Australia’s central bank surprised markets this week by pausing on interest rate hikes after retail sales and new building construction data showed that domestic demand weakened as a result of the three previous rate increases. Meanwhile, Indonesia left rates unchanged, as expected, despite an uptick in January inflation.

Strong export performance across the region suggests that external demand continues to strengthen, and robust PMI releases show that manufacturing continues to expand albeit at a slower pace. In line with global trends, the regions’ stock markets posted steep losses over the week while most currencies depreciated moderately. In the coming week, markets will focus on Korea’s monetary policy statement; and Indonesia will release 4Q GDP figures.