(Oct 16): Three of Southeast Asia’s biggest economies will unveil monetary policy decisions from 3pm Malaysian time on Wednesday, influenced by everything from politics, inflation and currency volatility to geopolitical risks.

Bank Indonesia last month surprised markets with an early rate cut, but recent rupiah weakness means a majority of analysts expect officials to hold. The Philippine central bank has strongly flagged it will keep lowering rates. And the Bank of Thailand (BOT) is expected to continue defying government calls to cut borrowing costs, despite weak growth and inflation that’s below the bottom of its target range.

All three nations are highly sensitive to the health of the global economy. But they are also diverse: Indonesia has clout in commodities; Thailand has large tourism and manufacturing sectors; and the Philippines is home to a vast outsourcing industry serving global companies. The general consensus is for policymakers to hold or cut on Wednesday, with rate hikes virtually off the table.

Bank Indonesia will keep the benchmark rate at 6%, according to 30 of 41 economists in a Bloomberg News survey, with the rest expecting another 25-basis-point cut. Bloomberg Economics is one of those seeing a quarter point as possible.

In September, policymakers in Southeast Asia’s biggest economy embarked on an easing cycle ahead of the US Federal Reserve’s (Fed) move. But renewed market volatility, fuelled by weaker US economic data and Middle East tensions, may lead emerging markets to be more cautious in moving lower. The rupiah has dropped more than 2% against the dollar this month, forcing the central bank to intervene in markets for the first time in months.

So policymakers led by governor Perry Warjiyo may hold this month and ease later in the quarter, according to DBS Bank economist Radhika Rao. “It will be a close call,” she said.

In general, the central bank is unlikely to reverse its easing stance. Low inflation and subdued consumption support the case for further rate cuts to help domestic demand, said Brian Lee, an economist at Maybank Securities Pte Ltd, who expects rate cuts to be deferred to November and December.

With near record-high foreign exchange reserves, Bank Indonesia may rely more on market intervention to stem any further rupiah declines. It may also need to keep the yields on its rupiah-denominated securities attractive to lure enough foreign inflows to keep the currency stable.

Bangko Sentral ng Pilipinas (BSP) governor Eli Remolona told Bloomberg News earlier this month that he expects quarter-point cuts at each meeting, for a total 175-basis-point reduction by the end of 2025.

Inflation fell to its lowest in four years in September, thanks to slower increases in the prices of rice and other food items. Some 24 of 26 economists in a Bloomberg survey expect BSP to cut its target reverse repurchase rate by 25 basis points to 6%, the lowest since February 2023.

“What can make BSP step back from sustained rate cuts are the risks of worsening global oil prices and if the Fed slows on easing,” said Angelo Taningco, the chief economist and head of research at Security Bank Corp, adding that he expects both BSP and the Fed to make two 25-basis-point cuts this quarter and another 100 basis points next year.

The Philippine peso has fallen about 4% against the US dollar this year, but recent foreign flows into the local stock market have limited losses. The relatively stable currency and tepid economic growth are other reasons for BSP to continue to ease. It lowered the reserve requirement ratio to 7% for big lenders, pulling another lever to support the economy.

Thailand’s Monetary Policy Committee (MPC) will likely resist the government’s rate cut calls once again and keep its benchmark interest rate unchanged at 2.5%, the highest level since 2013, for the sixth straight time, according to 22 of 27 economists surveyed by Bloomberg. Five predict a quarter of a percentage point cut.

“Financial stability and high levels of household debt have been the cornerstone of the MPC’s decision-making until now, helping it push back on government’s and financial markets’ calls for easing,” said Shreya Sodhani, a regional economist at Barclays plc, who expects the central bank to stand pat this year. “The MPC now needs to walk a fine line to balance the trade-off between financial stability and its impact on growth.”

Still, many economists including Standard Chartered plc see a growing possibility of a cut either at this meeting or the next, given a slew of factors including the subdued growth outlook, below-target inflation, and political and private-sector pressure. Deputy Finance Minister Paopoom Rojanasakul said earlier this month a 25-basis-point cut would be a good start, adding he thinks the central bank will cut rates this year.

Thai Chamber of Commerce chairman Sanan Angubolkul said on Oct 9 that lower borrowing costs would help businesses grappling with high expenses and a strong baht. The local currency gained 14% in the third quarter, making the nation’s exports more expensive compared to competitors.

The government is separately pushing to raise the 2025 inflation target from the 1% to 3% range to 1.5% to 3.5%, people familiar have said. There has also been manoeuvring to place Kittiratt Na-Ranong, a critic of the BOT’s hawkish monetary policy and a ruling party loyalist, in the key role of the chairman, which could add pressure on governor Sethaput Suthiwartnarueput. 

The governor underscored the importance of independence in setting monetary policy last month. He also said decisions will be guided by the outlook for domestic economic and financial conditions and inflation. One of his predecessors, Tarisa Watanagase, warned that government meddling could have “disastrous consequences” for Southeast Asia’s second-biggest economy. 

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