Easing inflation next year will allow central banks in ASEAN to cut interest rates, albeit not rapidly

A moderation in cost pressures has allowed central banks in ASEAN to keep rates on hold

Credit costs, which rose quickly in 2022, will remain high through 2023 in ASEAN due to the lagged impact of rate hikes over the last 18 months. In Indonesia, Thailand, Singapore, and the Philippines, credit costs will gradually decline starting from Q2 2024. Firms should consider delaying investment decisions until Q2 or Q3 next year where possible to take advantage of easing interest rate costs. The only exception to this trend is Vietnam, where credit costs will ease earlier compared to the rest of the region, as the State Bank of Vietnam (SBV) cuts rates drastically in 2023 to boost economic growth. 

High interest rate costs this year will weigh on consumer demand for residential real estate and automobiles (often purchased on credit) through Q1 2024 at least. Demand for these goods will recover from Q2 2024 once credit costs begin to gradually decline. A similar dynamic will play out for companies’ local partners and distributors, who will face very tight credit conditions and high costs through 2023, before these headwinds ease starting from Q2 2024. Companies should consider ensuring that the high credit cost environment this year does not impact key partners’ ability to serve their customers.


ASEAN central banks swiftly raised interest rates in 2022 in response to high inflation and significant currency depreciation, resulting in a substantial rise in credit costs. These central banks turned increasingly dovish in H1 2023, eventually pausing rate hikes as inflationary and depreciatory pressures eased and the US Federal Reserve slowed the pace of its monetary tightening. The SBV has already started cutting rates to stimulate credit growth and investment in response to a slowdown in the economy.

The Monetary Authority of Singapore (MAS), which uses the exchange rate as its monetary policy tool, also left its monetary policy unchanged in April for the first time in two years as GDP growth slowed sharply in Q1 2023 and inflation fell slightly.

Our View

All central banks, except the SBV, will likely maintain their monetary policies through H2 2023 due to sticky inflation and the downside risks of currency depreciation. Subsequently, we expect the monetary policy of ASEAN central banks to diverge in 2024 due to varying domestic fundamentals:

  • Indonesia: Inflation will likely reach the lower end of Bank Indonesia’s (BI) target corridor of 2–4% by Q1 2024. This will allow the BI to cut rates by a cumulative 75 basis points. Even so, rates will not fall as quickly as they rose, causing some continued pressure on credit costs through 2024.
  • Philippines: Bangko Sentral ng Pilipinas (BSP) will likely cut rates by a cumulative 125 basis points in 2024, once inflation approaches the BSP’s target range of 2–4% and the peso stabilizes. However, even after rate cuts, interest rates will remain elevated in the Philippines relative to other APAC markets.
  • Thailand: The Thai economy will likely see a complete normalization of economic activity in 2024 after four years, once the tourism sector returns to pre-pandemic levels and costs stabilize. This will allow the Bank of Thailand to cut interest rates by 25 basis points in 2024, returning them to the levels seen pre-pandemic.
  • Malaysia: Bank Negara Malaysia’s recent hikes have brought the benchmark interest rate back to pre-COVID levels. Considering the relatively gradual pace of hikes in Malaysia, the bank is unlikely to cut rates relative to current levels through 2024.
  • Vietnam: The SBV will likely maintain the benchmark interest rate at 4% in H1 2024 before raising rates by 50 basis points in H2 2024 once economic growth stabilizes.
  • Singapore: The MAS will largely leave its monetary policy unchanged as the SGD will appreciate against the USD in 2024 amid rate cuts by the US Federal Reserve.

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