Asia
China’s capital outflows will likely remain substantial at least through the next few quarters. This wave of capital outflows will likely be more chronic, albeit less acute than the 2015-16 episode. Persistent capital outflows will exert downward pressure on the RMB.
Many commentators have attributed the latest increase in Chinese interest rates to an improving economy, the large issuance of government bonds, the tax payments season, and other technical factors. Yet, these explanations are missing the key point: the PBoC has steered interbank rates higher to defend the currency. Higher borrowing costs are the last thing the mainland economy now needs.
Amid a range of geopolitical narratives, what matters is that the US strategy of economic engagement with its rivals is failing, giving rise to a new strategy of containment that will reinforce the secular rise in geopolitical risk. Our market-based quantitative indicators of geopolitical risk are set to rise in the coming year.
The recent rate hike by the Philippines central bank cannot control food inflation. Nor can it stem the currency slide.
