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The global economic slowdown has brought emerging Asia's rate-hiking cycle to a premature pause and the next step could be easing if the United States slides into a recession or Europe's debt troubles spawn a full-blown financial crisis.
Central banks in Indonesia, Malaysia and the Philippines said on Thursday that inflation pressures were abating, and predicted they will get more relief as the weakening world economy chills demand.
This is not a sure bet. It assumes that a large portion of the price pressure emanates from abroad rather than from domestic demand, which may not be the case in countries such as China where growth remains strong.
But a look back at the 2008 financial crisis shows that many Asian countries are in a better position to respond to another downward spiral now should the need arise.
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Even though inflation is running too hot for comfort across the region, it is lower now than it was in 2008 for some economies, including Indonesia and the Philippines.
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Tim Condon, an economist with ING in Singapore, thinks those two countries may be cutting rates before year-end -- especially if the U.S. Federal Reserve announces more easing measures at its two-day policy-setting meeting that ends on September 21.
"Both of them were victimized by behind-the-curve hysteria" when world oil prices spiked earlier this year, Condon said.
"I think the Fed will do something.... and that will be a pretty widely followed signal around the emerging markets that the right move is to become more accommodative."
CALLING THE PEAK
Condon's view is more dovish than the consensus. But several economists erased rate hikes they had penciled in for 2011 after Thursday's batch of central bank meetings. In all, six Asian central banks held policy-setting meetings this week, and all held rates steady, as expected.
Goldman Sachs, for example, now expects Philippine rates to be on hold through year-end, removing a quarter-point rate hike from its forecast.
"We still expect tightening in most countries in Asia, just not by as much as previously," Goldman Sachs economist Fiona Lake wrote in a research note dated Thursday.
The most recent inflation readings were at the high end of or above central banks' comfort zones in China, Indonesia, the Philippines, Malaysia and India, which suggests the bias would be toward tightening if the global economy was not wobbling.
However, most central bankers and private economists think inflation has probably peaked. Chinese data released on Friday showed inflation rose 6.2 percent from a year ago, as expected in a Reuters poll, pulling back somewhat from July's 6.5 percent rise.
