Asia Weekly Watch: Are central banks softening on inflation?

Headline inflation has either already peaked, or is close to doing so, in a number of countries in the region thanks to easing food and energy prices. This, together with moderating trends in global growth and domestic demand, has led several central banks to begin signaling a softer stance on inflation. For example, central banks in Indonesia, Australia and New Zealand stood pat on interest rates this past week (Chart 2), with their statements showing less concern about inflation risks . Nevertheless, core inflation is continuing to rise (see Highlights), reflecting strong demand side pressures. This was an important motivation for the Bank of Korea in raising rates this week to 3.25%, thus continuing the normalization of monetary policy, which is still accommodative. We continue to expect further rate hikes across the region, albeit at a gradual pace (see Asia Outlook).

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