Inflation Fears Hits Asian Bonds, Markets Weighing Rapid Rates Hike as Western Peers

Fears of inflation are sweeping across emerging Asia with traders now betting central banks in the region would have to hike rates to tame down inflation.

Thai rate swaps and bond yields jumped Thursday after a report showed that the nation’s core inflation rate held at a 10-year high in April.

Soaring inflation also fueled in short-end Philippine yields while benchmark rates in India extended as rise triggered by a surprise rate hike on Wednesday.

The development comes in as traders are concerned Asian central banks may have fallen behind the curve in addressing soaring price pressures as the war in Ukraine and China’s Covid curbs drive global prices higher.

Thailand’s monetary authority has said it can look past short-term price pressures while its Philippine counterpart has been on hold for the past year.

“Market participants are signaling that they don’t believe that the Bank of Thailand will maintain the policy rate at 0.5% this year, with the two-year Thai yield signaling that the first quarter-percentage-point hike should arrive in the second half,” said Poon Panichpibool, a strategist at Krung Thai Bank Pcl in Bangkok as reported by Bloomberg.

Meanwhile, market is expecting the Bank of Thailand will have to hike rates in coming months amid increase in fuel prices leading to quicker inflation.  The premium on two-year non-deliverable interest rate swaps over the policy rate has widened to 138 basis points, the highest in more than a decade.