JPMorgan: Asian central banks may be less hawkish than market pricing

Overview

This is a JPMorgan Asia-Pacific economics report focused on how EM Asian central banks may respond to an energy shock, inflation pressure, and growth slowdown risks. The report argues that while the Middle East conflict and the Strait of Hormuz risk have raised concerns over energy availability and price pressure, most Asian central banks will view the current shock as supply-driven and prefer to wait for more data rather than hike as aggressively as markets expect.

Core views

The report's core judgment is that markets are pricing Asian central banks too hawkishly. The RBI has already kept policy rates unchanged and maintained a neutral tone, while the BoK is also stressing the persistence of the shock. Inflation data in Thailand and Taiwan came in below expectations, supporting a longer pause. The main exceptions are Singapore and the Philippines: the report expects MAS to tighten FX policy via a 50bp slope increase, and it sees a 25bp hike by the Philippine central bank in August as the base case, while not ruling out action as early as April.

Analysis framework

The report develops its analysis along three main lines: first, it compares market policy pricing with central-bank communication and inflation data; second, it assesses the impact of a possible closure of the Strait of Hormuz on Asian energy availability; third, it builds a vulnerability ranking for economies using energy intensity, exposure to Middle East energy imports, and days of crude-oil inventory cover. In addition, it incorporates tracking for Australia wage-setting rules, Japan, Greater China, ASEAN, and India.

Methodology notes

• Monetary policy analysisComparison of market pricing and central-bank reaction function

  Compare market-implied rate-hike expectations, central-bank statements, inflation data, and growth forecasts to judge whether markets are too hawkish.

  The report argues that under a supply shock, central banks usually do not hike mechanically unless the energy-price shock feeds through to core inflation or inflation expectations become unanchored.

• Macro risk scoringComprehensive Asian energy vulnerability index

  Construct a relative vulnerability ranking using energy intensity, exposure to Middle East energy imports, and days of crude-oil inventory cover.

  This approach is used to identify which economies would be more likely to suffer from energy shortages and activity disruptions if the Strait of Hormuz were to close again.

• Wage inflation analysisCombination of top-down unemployment modeling and bottom-up wage-setting shocks

  Assess the path of Australia's WPI using unemployment, the vacancy-to-unemployment ratio, minimum wages, and youth wage adjustments.

  The report believes Australian wage growth is likely to remain in the low-3% range and remain compatible with the inflation target.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• India policy rate

  The market may be overpricing a near-term hike

  Strengths

  Inflation forecasts remain within the 4-5% corridor, and the central bank's tone is cautious.

  Weaknesses

  Energy and food-price shocks could still lift near-term inflation.

  Comparison

  Compared with hawkish market expectations, the report leans toward no near-term hike.

  Risks

  If inflation expectations become unanchored or core inflation rises, the central bank could be forced to turn more hawkish.

• Korea policy rate and KRW

  Policy rate is expected to stay unchanged, but the currency and inflation expectations need monitoring

  Strengths

  Demand-side price pressure is lower than in the previous hiking cycle.

  Weaknesses

  The current shock is more Asia-focused and the supply-side risk is larger.

  Comparison

  The report is less hawkish than market pricing for multiple hikes.

  Risks

  KRW depreciation and higher price sensitivity could push the policy stance more hawkish.

• Singapore exchange-rate policy

  MAS is expected to tighten moderately

  Strengths

  FX policy tools can address inflation pressure gradually.

  Weaknesses

  Growth downside risks and energy uncertainty limit room for aggressive tightening.

  Comparison

  The report expects a 50bp slope increase rather than a more aggressive recentering or band widening.

  Risks

  If inflation or growth is stronger than expected, another 50bp increase could come in 2H26.

• Philippines policy rate

  There is a fairly clear rate-hike risk within the region

  Strengths

  The central bank can hike to prevent inflation expectations from becoming unanchored.

  Weaknesses

  High energy exposure and low inventories leave growth and inflation pressures coexisting.

  Comparison

  Relative to India, Korea, Thailand, and Taiwan, the Philippines is closer to tightening.

  Risks

  The probability of an early April hike is estimated by the report at 30%.

• China macro growth and PPI

  Strong in 1Q, but growth may soften thereafter

  Strengths

  The energy supply chain is more diversified and inventory buffers are relatively ample.

  Weaknesses

  External demand, tariff policy, and the energy shock create uncertainty.

  Comparison

  In the energy-vulnerability ranking, China is among the relatively protected economies.

  Risks

  If policy remains supply- and investment-driven, PPI deflation could reappear in 2027.

Key data

• RBI policy assessmentHold rates unchangedThe report sees no near-term rate-hike risk, despite upward revisions to inflation forecasts and downward revisions to growth forecasts.
• BoK policy assessmentPolicy rate expected to remain unchanged until next yearIf the energy-price shock feeds into core inflation, there is a risk of a more hawkish turn.
• Thailand March inflation-0.1%oyaThe report expects April CPI to rise to 2.8%, with May potentially briefly above the target band, though the full-year average should remain within the band.
• Philippines March inflation4.1%oyaThe report expects a 25bp hike in August to 4.50% and assigns a 30% probability to a hike in April.
• Singapore MAS expectation50bp slope increase to 1.00%The report sees this as a gradual tightening move, milder than a recentering or widening of the band.
• China 1Q GDP forecast7.2%q/q saarThe report expects March exports, industrial production, and retail sales to ease back, but the first-quarter trend should still be strong.
• China full-year PPI forecast1.3%y/yRaised from 1.1% because of higher import-led producer-goods inflation.
• Impact of Australia youth wage-setting rulesAbout +0.4 percentage points in 2027The report believes the impact on aggregate WPI is limited, and wage growth may still remain in the low-3% range.

Impact & implications

If the report is right, pricing in Asian rates markets for the path of rate hikes may need to be revised lower, especially in economies such as India, Korea, Thailand, and Taiwan that are more likely to stay on the sidelines. The main impact of the energy shock is not just price pressure, but also the risk of energy unavailability and disruptions to economic activity, meaning more vulnerable economies could face larger growth downside and a policy dilemma. Investors need to distinguish between central-bank reaction functions, energy-import structures, and inventory buffers, rather than assuming that higher oil prices automatically imply broad regional rate hikes.

Risks

• If the Strait of Hormuz were to close again, energy availability could become a nonlinear constraint on Asian growth.
• If the energy-price shock feeds into core inflation or inflation expectations, central banks could turn more hawkish than the report's base case.
• Economies such as the Philippines, Vietnam, India, and Indonesia may face larger activity shocks because of import exposure, low inventories, or higher energy intensity.
• China's exports, industrial production, and retail sales may have already started to retrace in March, compounded by tariff policy and external-demand uncertainty.
• Australia's wage-setting reforms may alter the youth employment structure, but the net impact on unit labor costs remains uncertain.

What to watch

• Whether the Middle East ceasefire holds and whether the Strait of Hormuz remains open.
• April and subsequent CPI prints, core CPI, and inflation-expectation changes across Asian economies.
• Follow-up policy statements and forward guidance from the RBI, BoK, BOT, MAS, and BSP.
• The trajectory of the Korean won and its impact on imported inflation and policy communication.
• Whether the Philippines advances a hike in April and whether the August hiking path remains intact.
• March activity data in China, 1Q GDP, PPI, and the scale of the export slowdown.
• Energy inventories, changes to fuel subsidies, and policy signals on supply constraints such as power rationing or traffic restrictions.