Middle East Crisis Influences Asian Interest Rate Trends, OCBC Economist Says

Economists at OCBC have noted that the ongoing Middle East crisis is impacting interest rate trends in Asia. According to Jin10, analyst Lavanya Venkateswaran highlighted that central banks previously inclined towards further monetary easing, albeit limited, such as those in Thailand, the Philippines, and India, are now reconsidering rate cuts. OCBC has also revised its expectations for Indonesia's central bank, no longer anticipating a 50 basis point rate cut, and now expects rates to remain unchanged through 2026. In certain regions, the likelihood of rate hikes is increasing, largely contingent on the duration and extent of rising energy prices. Venkateswaran pointed out that with policy rates in most areas already at or near neutral levels, policymakers have the opportunity to adopt a wait-and-see approach. This strategy allows them to mitigate stagflation risks, which were less pronounced during the shocks of 2022 due to higher inflation rates and policy rates not being at historical lows.