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Central banks to dominate Asia's attention this week

A man and a women walk into the Reserve Bank of Australia headquarters in Sydney, Australia.
Mark Metcalfe | Getty Images
A man and a women walk into the Reserve Bank of Australia headquarters in Sydney, Australia.

Monetary policy decisions will likely hog the spotlight in Asia this week, with policymakers in Australia, Thailand and Malaysia set to convene for monthly meetings.

Analysts say the Reserve Bank of Australia's (RBA) decision may come down to the wire at its monetary policy meeting on Tuesday.

For analysts calling for further easing, recent data suggesting cooling inflation in September quarter is an impetus for the RBA to reduce its cash rate by 25 basis points to an all-time low 1.75 percent.

"The low September quarter inflation print, coupled with the renewed wave of global monetary policy easing, will force the central bank off the sidelines to lift soft domestic demand and keep downward pressure on the Australian dollar," Moody's Analytics said on October 30.

But economists from Societe Generale think the central bank will hold off on a rate cut for now.

"Two developments have raised the probability that the RBA will cut rates further. One, Australia's big banks have raised their mortgage rates by 15-20 basis points, and third-quarter inflation substantially surprised to the downside," the bank wrote in a report on October 30.

"However, we believe that these are not sufficiently powerful to tip the balance in favor of an even lower cash rate from levels that are already at an all-time low. The key argument against a cut is the risk to financial stability."

Over the past two weeks, the country's Big Four lenders down under have raised their variable mortgage rates between 15 to 20 basis points.

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By contrast, policymakers in Thailand are in no hurry to cut rates after the announcement of stimulus measures worth a combined 364 billion baht ($11.2 billion) earlier this month, HSBC's economist Nalin Chutchotitham wrote in a note dated October 30.

In addition, comments from Governor Veerathai Santiprabhob on October 21 about how a prolonged low-rates environment may compromise long-term economic stability suggest "lingering reservations about lowering rates further," Chutchotitham added.

Meanwhile, central bankers in Malaysia meet on Thursday. The Bank Negara Malaysia kept the overnight policy rate unchanged at 3.25 percent last month for the seventh straight meeting, as quickening inflation and a weaker ringgit left the central bank with limited room to add stimulus.

A private survey of China's mammoth manufacturing sector is due on Monday and AMP Capital's chief economist Shane Oliver expects the figures to indicate signs of improvement. Caixin's final purchasing managers' index (PMI) for October is expected to come in at 47.50, according to economists polled by Reuters, recovering from September's fresh six-and-a-half year low of 47.2.

Over the weekend, China's official purchasing managers' index (PMI) came in at 49.8 for October, according to data from the National Bureau of Statistics (NBS), contracting for a third straight month. The reading was unchanged from the previous month but missed market expectations of 50.0, adding to fears that the world's second-biggest economy may be stalling despite the latest slew of stimulus.

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Elsewhere in the region, Indonesia's third-quarter gross domestic product (GDP) is due Thursday.

According to Bank Indonesia (BI) Governor Agus Martowardojo, the central bank expects the country's annual growth rate in the July-September period to be 4.85 percent. Indonesia's economy expanded 4.67 percent in the second quarter, marking its lowest rate in six years.

Asia remains in the midst of third-quarter earnings season, with financials across the region kicking off the week.

On Monday, Singapore's DBS Group Holdings –Southeast Asia's largest bank – reports third-quarter numbers, while Australia's Westpac announced a 3 percent rise in annual cash profit. In Hong Kong, shares of HSBC and Hang Seng Bank will be watched as investors await their quarterly reports.

"When HSBC announces its third-quarter numbers, traders are anticipating revenue of 14.63 billion pounds and adjusted net income of 3.65 billion pounds, which compares with the second-quarter revenue and adjusted net income of 17 billion pounds and 4.25 billion pounds respectively," IG's London-based market analyst David Madden wrote in a note dated October 28.

Meanwhile, Japanese automakers such as Toyota, Nissan and Honda, as well as the likes of market heavyweights including SoftBank and Japan Tobacco, will also hand in their corporate report cards in the week ahead.

In India, the focus will likely be on software exporter Tech Mahindra's earnings on Tuesday, and coffee chain operator Coffee Day Enterprise which makes its debut in Mumbai on Monday.