Oil price shocks exacerbate inflation pressures! Goldman Sachs re-evaluates the currency policy prospects of multiple Asian countries.

With the war between the US and Iran pushing up energy prices and driving up inflation in Asia, Goldman Sachs has revised its earlier forecasts of Indonesia implementing a loose monetary policy this year while adding expectations of interest rate hikes in India and the Philippines. In a report released on Tuesday, Goldman Sachs economists wrote that in economies where inflation expectations are weaker, exchange rate sensitivity is higher, and the transmission effects of fuel prices are stronger, central banks are more likely to tighten policy. This has prompted Goldman Sachs to bring forward its expectations of further policy tightening in Singapore and increase its forecast of another rate hike in Australia. Goldman Sachs stated, "A significant supply shock poses challenges for monetary policy. Our new baseline forecast faces two-way risks, but still leans towards larger and longer-term upward shocks in energy prices." At the time of the report's release, the Middle East conflict had entered its fourth week, and the energy markets were in turmoil. Goldman Sachs' oil price forecast assumes that the closure of the Strait of Hormuz will continue until mid-April, pushing Brent crude to an average of $105 per barrel in March, rising to $115 in April, and then falling to $80 in the fourth quarter. Economists say that as a result, inflation in Thailand and the Philippines may rise by more than 1 percentage point. At the same time, due to the presence of energy subsidies, they expect the impact of this shock on China, Japan, and South Korea to be "close to zero." Regionally, they expect consumer prices to rise by an average of 0.6 percentage points, resulting in a cumulative increase of just over 1 percentage point since the start of the conflict. Goldman Sachs says that the impact on economic growth is not evenly distributed. The bank's growth forecast for China, Japan, and South Korea has hardly been revised downwards, while the forecasts for growth in India, the Philippines, Thailand, and Singapore have been cut by over 0.5 percentage points. Economists say that apart from Australia and Malaysia, the current account balances of most economies in the region will also deteriorate. They expect governments to relax fiscal policy through subsidy measures and central banks to strengthen exchange rate interventions to limit import-driven inflation.