"Lower oil prices offer disinflationary relief for monetary policies": Standard Chartered on Asian central banks

The global bank said the recent decline in oil prices is likely to provide "disinflationary relief" across much of Asia, particularly for economies that rely heavily on imported energy, including India.

"Lower oil prices offer disinflationary relief for monetary policies, but unevenly across Asia. Regional risk assets and local-currency (LCY) bonds are supported," the report said.

Explaining the rationale, Standard Chartered said most Asian economies are net energy importers, meaning lower crude prices reduce inflationary pressures and improve policymakers' ability to prioritise economic growth.

"Lower oil prices offer disinflationary relief for Asian central banks because most of these economies are net energy importers, " the report said.

It added that "in heavy energy import-reliant economies, such as India, Thailand and the Philippines, easing energy inflation reduces balance-of-payments pressures, allowing their central banks to focus on growth."

However, the report noted that the benefits will not be evenly distributed across the region, as inflation dynamics differ across economies.

According to Standard Chartered, "The relief will be uneven across Asia, and we expect regional monetary policies to remain divergent." While energy-importing countries such as India stand to gain from lower oil prices, economies including South Korea and Singapore continue to face demand-driven inflation linked to the artificial intelligence boom, suggesting their central banks may keep interest rates higher for longer.

The report also said lower energy prices are supportive of regional financial markets.

"We view lower energy prices as supportive of Asian risk assets and LCY bonds," it said.

Despite the constructive outlook, Standard Chartered cautioned that weather-related risks could reverse some of the gains from lower oil prices.

"A growing reflation tail risk for Asia is the potential formation of a 'Super El Nino,'" which it estimates has a 63 per cent probability of occurring in the fourth quarter.

It said extreme heat and drought could disrupt agricultural output, while increased demand for air-cooling could push energy prices higher again, reviving inflationary pressures across the region. (ANI)