Energy Shock Wave Quietly Sweeps Across Asia, Asian Central Banks May Be Forced to Turn Hawkish

The ongoing Middle East conflict is escalating, with oil prices returning to the $100 mark. Central banks across Asia are facing increasing pressure on their monetary policies.

JPMorgan economists noted in a report that fiscal policy may become the first line of defense for countries responding to energy shocks. If oil prices remain high, central banks across Asia could shift toward a hawkish stance. In scenarios where energy costs push up consumer prices, the likelihood of tightening policies in Singapore and Malaysia increases, while the chances of Indonesia and the Philippines cutting interest rates decrease accordingly.

International oil prices again surpassed $100 per barrel on Thursday, and the International Energy Agency’s plan to release strategic reserves has failed to effectively quell market concerns over supply disruptions.

Goldman Sachs has delayed its expectations for Federal Reserve rate cuts from June and September to September and December, citing high oil prices that have driven up near-term inflation prospects, reducing the likelihood of early easing. For Asia, which heavily depends on Middle Eastern energy, this inflationary impact could be particularly significant.

From Japan to Australia, central banks face varying pressures

This round of Middle East conflict was triggered on February 28 when the US and Israel launched attacks on Iran, continuing to disrupt global oil supply and weaken capacity. The impact on central banks varies significantly depending on their individual circumstances.

For the Reserve Bank of India, JPMorgan states that as inflation risks accumulate, the bank may keep interest rates unchanged for a longer period.

Japan’s situation is relatively unique. Capital Economics analyst Marcel Thieliant pointed out that rising energy costs have actually helped the Bank of Japan avoid an awkward situation — previously, it was difficult to justify further rate hikes when overall inflation was below the 2% target, but rising oil prices have provided some support.

He said that as long as crude oil prices do not rise significantly further, inflation is unlikely to reach levels that the Bank of Japan would find intolerable. However, Thieliant also warned that with 95% of Japan’s oil imports coming from the Middle East, the risk of energy supply disruptions cannot be ignored, and the Bank of Japan will remain highly vigilant about the economic impacts of the conflict.

In Australia, Moody’s analyst Sunny Kim Nguyen stated that the likelihood of another 25 basis point rate hike this month is increasing, as the Middle East conflict intensifies the urgency to act. She wrote in her report that the reasons for tightening policy existed even before the conflict erupted, and now the oil price shock presents new inflation risks.

Currently, there is considerable uncertainty about how long this turmoil will last, but some analysts have begun to revise down expectations for monetary easing. As the conflict prolongs, the probability of Asian central banks turning hawkish continues to rise over time.