Asia FX: Central banks act as risk managers – MUFG

MUFG’s Michael Wan reviews recent decisions by Bank of Korea (BoK), Bangko Sentral ng Pilipinas (BSP) and Bank of Japan (BoJ), stressing a shared risk-management approach under uncertainty. BoK and BSP both hiked 25 bps but signalled a slower pace ahead while keeping tightening options open. Wan links these policy stances to its broader Asia FX and rates positioning.

BoK, BSP and BoJ signal cautious tightening

"We had policy decisions and/or communication from 3 key Asian central banks yesterday (27 Aug), and one common thread was the idea of the central bank as a risk manager working under imperfect information and uncertainty over how long it takes for their tools to take effect, especially during times of structural changes and shocks."

"On that note from a policy decision perspective, we had both the BoK and BSP raising their key policy rates by 25bps yesterday to 3.00% and 5.00% respectively (from 2.75% and 4.75%)."

"More importantly for markets, the communication and tone for both generally pointed to a slower pace of rate hikes moving forward, even as both the BoK and BSP kept the option to do more to tighten monetary policy to address inflation risks moving forward."

"Meanwhile, BSP Governor Remolona highlighted the meaningful risks of a severe El Nino and minimum wage hikes to inflation, and with that the BSP will tighten as much as they need to."

"BoK also raised its 2026 and 2027 GDP growth forecasts to 3.3% and 2.9% (from 2.6% and 2.1%), while keeping its inflation forecasts unchanged."