In response to high inflation, central banks across the world have, at times severely, tightened interest rates. Asia has followed suit, with recent central bank rate hikes in Taiwan, Macau, Hong Kong and India. In May, several more Asian central banks had already increased their rates, some following up on a row of previous hikes. This is shown in data aggregated by Trading Economics.
Hong Kong's hike was widely expected as its currency is pegged to the U.S. dollar, while Taiwan's hike was smaller than anticipated. "Soaring U.S. interest rates place downward pressure on currencies in Asia and lure foreign investors away from the region. That in turn forces central banks in the region to raise their own funding benchmarks in response", Bloomberg reports.
While homegrown inflation in Asia has stayed behind the world average in some places, global market pressures are raising interest rates in Asia all the same. Thailand, which is battling high inflation, has yet to make a move, while South Korea, which is in the same boat, raised interest to 1.75 percent in May, the latest in a series of now five consecutive increases. Japan on Friday decided to keep rates around zero despite the weak yen. One advantage of the Japanese market is its still low inflation rates.
More hikes in Indonesia and the Philippines could come this week. The latter country raised rates for the first time since 2018 last month to combat domestic inflation.
