(Bloomberg) — Traders are betting on rate hikes in emerging Asia as growth concerns continue to outpace inflation levels.
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Exchange prices in South Korea, Malaysia, India and Thailand have been falling since mid-June amid easing pressure and concerns over spillover effects affecting growth elsewhere. This volatile face lasted for the three months to June when the EM Asia Bonds index posted a 6% loss, the biggest since 2016, as inflation hit a multi-year high.
“Hawkish bets in EM Asia are falling partly as a response to policy rates falling,” said Galvin Chia, an EM FX strategist at NatWest Markets in Singapore. “Global factors such as the uptick in US rates over the past few weeks have also played a major role.”
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These four charts show where expectations for rate hikes have declined in South Korea, Malaysia, India and Thailand:
1. South Korea
Won swaps are pricing for the Bank of Korea to rise to about 2.75% over the next six months, which appears to be the terminal rate of expectations as one-year swaps have also converged at the same level. In mid-June, those same one-year swaps were pricing in a move to raise rates to 4%.
A member of the Bank of Korea’s board warned last month that the pace of policy tightening could be slowed by rising risks facing the domestic economy.
Traders have been betting on Hawkish Bank Negara Malaysia since mid-June, with ringgit one-day rates for one year factoring for a cumulative 75 basis points of the benchmark rate over the next 12 months, down from expectations of 3.50 to 3%. increases. % in early June. This is in line with expectations for the policy rate to rise to 3% by the second quarter of next year, according to a median of economists surveyed by Bloomberg.
According to a July 25 note, the CGS-CIMB is forecasting Malaysia’s GDP growth to slow to 4.1% in 2023 from an estimated 5.2% this year, as the country’s external trade slows to the effects of the global recession. will feel
The rupee overnight indexed swap is factoring in a growth rate of around 130 basis points over a 12-month horizon, which will bring the policy rate down to 6.20%. That would be slightly above economist average expectations for the benchmark rate to rise to 6% by the middle of next year.
In contrast, swaps were pricing for a rate hike of 150 basis points on July 18.
Traders are making less aggressive calls for the Reserve Bank of India as inflation is showing signs of moderation. Retail price growth in May and June was lower than expected, after beating expectations for four consecutive months since April.
Thailand’s one-year non-deliverable interest rate swap is expected to increase rates by at least 75 basis points over the next 12 months, with the swap currently at around 1.40%, up from a three-year low of 1.78% in mid-June. below the high level. An average of economists surveyed by Bloomberg has forecast the policy rate to rise to 1% by the middle of next year.
The Bank of Thailand meeting is on August 10 and the decision is widely expected to escalate.
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