We think that Asian assets risk a more volatile environment in the coming days in the run-up to the next FOMC meeting this week. We expect most of the impact on India and Indonesia.It is not surprising that Mr Rajan’s first monetary policy meeting has been scheduled for after the FOMC meeting. Meanwhile, last week Bank Indonesia hiked policy rates by 25bp to 7.25% resulting in a cumulative hike of 150bp since May. Higher interest rates will support stabilisation, but it will also come at the cost of GDP growth. We have revised our GDP growth to 5.5% from 6% in 2013. Finally, total social financing (TSF), a broad measure of lending in China almost doubled in August, rising to RMB 1570bn, compared to RMB 809bn the previous month. We expect the authorities to continue implementing strict controls on shadow banking, suggesting that in the coming months we will see more modest growth rates in lending. This is also consistent with the stricter supervision of local government debt.
Weekly Asia.pdf ()