Energy Shock Wave Quietly Sweeps Across Asia, Asian Central Banks May Be Forced to Turn Hawkish

The ongoing escalation of conflicts in the Middle East has driven oil prices back to the $100 mark, and the monetary policy pressures faced by central banks across Asia are rapidly intensifying.

JPMorgan economists noted in a report that fiscal policy may become the first line of defense for countries responding to energy shocks. If oil prices remain high, central banks across Asia could shift toward a hawkish stance. In scenarios where energy costs push up consumer prices, the likelihood of tightening policies in Singapore and Malaysia increases, while the chances of Indonesia and the Philippines cutting interest rates decrease accordingly.

International oil prices again surpassed $100 per barrel on Thursday, and the International Energy Agency’s plan to release strategic reserves has failed to effectively quell market concerns over supply disruptions.

Goldman Sachs has delayed expectations of Federal Reserve rate cuts from June and September to September and December, citing high oil prices that have boosted near-term inflation prospects, reducing the likelihood of early easing. For Asia, which heavily depends on Middle Eastern energy, this inflationary impact could be particularly significant.

From Japan to Australia, central banks face varying pressures

The current Middle East conflict was triggered on February 28 when the U.S. and Israel launched attacks on Iran, continuing to disrupt global oil supplies and weaken production capacity. The impact on each country’s central bank varies significantly depending on their individual circumstances.

For the Reserve Bank of India, JPMorgan states that as inflation risks accumulate, the bank may keep interest rates unchanged for a longer period.

Japan’s situation is relatively unique. Capital Economics analyst Marcel Thieliant pointed out that rising energy costs have actually helped the Bank of Japan avoid an awkward dilemma—previously, it was difficult to justify further rate hikes when overall inflation was below 2%, but the increase in oil prices has provided some support.

He noted that as long as crude oil prices do not rise significantly further, inflation is unlikely to reach levels that the Bank of Japan cannot tolerate. However, Thieliant also warned that Japan relies on Middle Eastern imports for 95% of its oil, and the risk of energy supply disruptions cannot be ignored. The Bank of Japan will remain highly vigilant regarding the economic impacts of the conflict.

In Australia, Moody’s analyst Sunny Kim Nguyen said the likelihood of another 25 basis point rate hike this month is increasing, as the escalation of the Middle East conflict heightens the urgency to act. She wrote in her report that the reasons for tightening policy existed even before the conflict erupted, and the oil price shock now introduces new inflation risks.

Currently, there is considerable uncertainty about how long this turmoil will last, but some analysts have already begun to revise down expectations for monetary easing. As the conflict prolongs, the probability of Asian central banks adopting a hawkish stance continues to rise over time.

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