Take a bow, Zeti Akhtar Aziz. The governor of the central bank of Malaysia has faced accusations of undue hawkishness for raising base interest rates three times since the beginning of the year. Yet she has acted almost without heed to the actions – or rather, inactions – of central bankers in the US, eurozone and Japan. For that alone, she should be applauded.
Many of her Asian peers have seemed reluctant to adjust policy settings in the absence of cues from the global leaders. Some are still on hold (China, the Philippines and Indonesia) and although others have lifted policy rates at least once (India, South Korea, Taiwan, Thailand and Malaysia) only Bank Negara Malaysia has taken action “pre-emptively”, according to a Citigroup study. Each of its three 25 basis-point increases – in March, May and July – were slightly ahead of a rate-setting model based on the so-called Taylor rule. The policy rates at all the other Asian central banks are up to 50bp lower than the model suggests is appropriate.
Take Bank Indonesia. If it lifts rates at the scheduled meeting today, the increase would not come a moment too soon. Thanks to La Niña, the usual June-September dry season may not happen at all; if so, already high prices for food – just over a third of the basket used for measuring inflation – would be pushed even higher.