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BENGALURU (Dec 12): Asian currencies broadly weakened on Monday ahead of crucial US consumer inflation data due this week, which could provide further clues on the Federal Reserve’s policy tightening path.
The rupee depreciated 0.6% as investors braced for India’s November inflation print, which will be released later in the day.
India’s inflation, which has stayed above the upper end of the Reserve Bank of India’s 2%-6% tolerance band all year, likely cooled to a nine-month low of 6.4% in November, according to a Reuters poll of economists.
Currencies elsewhere in the region also declined. Malaysia’s ringgit fell 0.3% and the South Korean won dipped 0.5%. The Philippine peso fell 0.6% to lead regional losses.
As concerns over a potential recession in major economies grow, investors are considering how the US inflation print due on Tuesday will affect the Fed’s interest rate hike trajectory over the coming months.
The Fed is widely expected to raise rates by 50 basis points on Wednesday at its last meeting of 2022, though the focus will also be on the central bank’s updated economic projections and Fed Chair Jerome Powell’s press conference.
Meanwhile, data released last week showed Philippine annual inflation surged to a 14-year high in November, with a pickup in prices seen supporting the case for a half-percentage point interest rate hike this month.
Analysts at ING expect the country’s central bank to retain its hawkish stance next year, taking into account the elevated inflation levels.
Stocks in Manila, however, advanced 0.7%.
In Taiwan, the central bank is likely to lift the benchmark discount rate by 12.5 basis points to 1.75% at its quarterly meeting on Thursday, according to 23 economists surveyed by Reuters.
“Emerging Asia’s hiking cycle generally has yet to end as high inflation continues to keep the central banks on a tightening path,” Analysts at Barclays said.
“Demand-pull inflation pressures remain relatively steady across Emerging Asia, which should overall keep the region’s central banks closer to the hawkish, rather than dovish, end of the policy spectrum,” they added.
Stocks across the region were largely subdued on Monday. Markets in Shanghai and Kuala Lumpur fell 0.3%, while Jakarta added 0.1%.
Markets in Thailand were closed for a public holiday.
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