HSBC expects the SBV to raise its refinancing rate by 50bp in both 1Q23 and 2Q23, taking the refinancing rate to 7.0% by mid- 2023e.

Indeed, recent 4Q GDP prints in Singapore and Vietnam suggested intensifying trade headwinds. HSBC expects ASEAN to see moderate growth in 2023, except for Thailand who will be a key PUBLIC beneficiary of the tourism boost. This will largely determine when the central banks will stop the current tightening cycle.

As the first one to start its tightening cycle in ASEAN, the Monetary Authority of Singapore (MAS) is also the first to flag downside risks. "Our base case is for a possible re-centring in April 2023, in response to near-term inflation pressures. "Given MAS' increasing concerns about growth, we do not expect any slope change to the SGDNEER policy band, a traditional tool for addressing medium-term inflation," said HSBC.

Indonesia and Malaysia had a similar inflation trajectory, until the former cut its generous fiscal subsidies, resulting in a c30% fuel price hike from last September. Since then, the Bank of Indonesia (BI) has delivered three consecutive 50bp rate hikes, before moderating the pace in December with a 25bp hike. HSBC expects BI to raise the policy rate by 25bp in 1Q23e, taking the BI rate to 5.75%.

Meanwhile, thanks to ongoing subsidies, Malaysia’s inflation has been relatively low, allowing Bank Negara Malaysia (BNM) to gradually raise its policy rates incrementally (i.e. 25bp) in 2022. While we expect the BNM to continue hiking by the same magnitude in the next three meetings, taking the policy rate to 3.50% by 2Q23e, we also need to be mindful of the risks of a pause if high frequency indicators point to a sharper-than-expected growth slowdown.

Another central bank taking a "gradual and measured" approach is the Bank of Thailand (BoT). HSBC believes the BoT will continue hiking incrementally (i.e. 25bp), given the upside risks to core inflation after the return of mass tourists. This bank expects the BoT to pause at 2.50% in 3Q23e.

Easing pressure from the USD will also help the Central Bank of the Philippines (BSP) and State Bank of Vietnam (SBV) in fighting against inflation. The Philippines’ high inflation print in December reinforces our view that the BSP will continue its hiking cycle, in which HSBC expects the BSP to raise its policy rate by 25bp each in the next three meetings, before pausing at 6.25% in 2Q23e. As the last regional central bank to move, the SBV has moved boldly since last September, delivering back-to-back rate hikes of 100bp each.

Similar to the Philippines, Vietnam is also facing stronger inflation pressures, warranting the SBV’s continued rate hikes. HSBC expects the SBV to raise its refinancing rate by 50bp in both 1Q23 and 2Q23, taking the refinancing rate to 7.0% by mid- 2023e.