Disinflation is underway in Asia with inflation falling within central bank targets across most countries. A report by Nomura stated that headline CPI inflation has fallen to 2.0 per cent YoY in January 2025 from a peak of 5.4 per cent (simple average across AEJ) in September 2022, and core inflation to 1.9 per cent from 3.8 per cent. Inflation momentum is down sharply as well. This is led by a normalization of food and energy prices, lower pipeline price pressures and the lagged impact of past policy tightening.
Sonal Varma, Chief Economist for India and Asia ex-Japan at Nomura, said, “Our underlying inflation scorecard shows that: 1) disinflation is broad-based and most Asian economies are in the cold inflation bucket; 2) Hong Kong, Singapore and India have the lowest underlying inflation pressure; 3) Singapore has experienced the sharpest fall in underlying inflation.”
Nomura estimated an underlying inflation scorecard to rank the nine AEJ economies based on three parameters: 1) the deviation of underlying inflation (average of 30 per cent trimmed mean and weighted median) from its long-term average; 2) the deviation of underlying inflation from central bank targets or historical averages; and 3) the deviation of core inflation momentum (% 3m/3m saar) from central bank targets or historical averages. The aggregate scorecard showed eight economies, out of nine, with a score below 100, compared to only four in mid-2024.
Low-flation to sustain in Asia
Caught between Donald Trump-led US administration’s tariffs and China’s overcapacity, Nomura said low-flation is expected to sustain in Asia. “We expect regional inflation to ease from 2.0 per cent YoY in January to 1.5 per cent in July. While Indonesia’s negative inflation is likely to be transient, we expect Thailand to join China, with its headline inflation likely to turn negative starting May,” Sonal Varma said.
Further, the analysis report maintained that the downside risks to growth, low inflation and high real rates mean there is still room to ease. “We expect further rate cuts in Thailand (100bp), India (75bp), the Philippines (75bp), Korea (at least 50bp) and a slight slope reduction in Singapore,” it added.
Asia still has space for policy easing
Disinflation is widespread in Asia. “As tariffs get implemented, downside risks to growth and inflation will likely become more material. Subtracting our estimate of underlying inflation from the nominal policy rate shows that real policy rates are high, and there is room to ease further,” Nomura said.
Thailand (100bp in cuts): Underlying inflation is the lowest in the region and 1.3pp below the BOT’s 2 per cent midpoint target. Nomura’s forecast of negative headline inflation starting in May, tight financial conditions, weak growth and the coming change in BOT leadership underpins its view of 25bp rate cuts each in June, October, December and February 2026.
Singapore (slope reduction): With its disinflationary trajectory well entrenched and rising downside risk to growth, Nomura said, “our FX strategy team’s base case is for the MAS to ease FX policy in April, with another slight slope reduction (to 0.5 per cent annualised from an estimated 1.0 per cent currently).
Korea (at least 50bp in cuts): Nomura report stated, “Our base case assumes that an impeachment is more likely (60-70 per cent probability), which will reduce political uncertainty, clear the hurdle for an extra budget and mean 50bp more in cuts (May and July). However, a no-impeachment scenario (30-40 per cent probability) could lead to increased political uncertainty, less fiscal support and could result in the BOK lowering its policy rate to 2.00 per cent or lower by end-2025, from 2.75 per cent currently.”
India (75bp in cuts): Nomura expects 75bp of further rate cuts to a terminal rate of 5.50 per cent by end-2025, with 25bp cuts each in April, June and August. “Our rates strategist expects banking system liquidity to move into a sustained surplus from early April, which will also narrow the gap between MIBOR and the repo rate,” it said.
Philippines (75bp in cuts): Underlying inflation has moderated by 1.2pp compared to six months ago, and it has the second-highest real policy rate in the region, which suggests still-restrictive policy rates. “We expect another 75bp in policy rate cuts, which would take the policy rate to 5.00 per cent by end-2025,” Nomura said.