JAKARTA Jan 25 (Reuters): South Korea led Asia's emerging stock markets lower on Tuesday as investors braced for US. interest rate hikes, while Singapore's dollar gained after the central bank tightened policy in a surprise move as inflation risks rise.
Central banks worldwide are beginning to either tighten policies or signal that a shift may be coming amid growing price pressures, leading to sharp falls in stocks in recent days.
Stock markets in China, Indonesia, Malaysia, Singapore and Taiwan all fell more than 1%, while in South Korea they slid 2.7%.
Singapore's central bank tightened its monetary policy settings in its first out-of-cycle move in seven years, a day after the city-state reported core inflation at an eight-year high and said it was reviewing its official forecasts.
The Monetary Authority of Singapore (MAS) last surprised with an off-cycle move in January 2015 when it eased its policy after a collapse in global oil prices.
"Given building core inflation pressures alongside a still strong growth outlook, we continue to expect MAS to increase the slope of the SGD NEER policy band by 100bp to 2.0%/annum (from 1.0%/annum currently) at the April meeting," Goldman Sachs said in a note.
The Singapore dollar advanced 0.2%, while other currencies in the region were largely flat to slightly higher even as the dollar firmed. "A steeper slope will provide the SGD more resilience against a rising dollar when the Fed starts its hike cycle," DBS said in a note.
All eyes are on the Fed, which concludes a two-day meeting on Wednesday, with investors waiting for any hint on the timing of interest rate hikes and the pace of the central bank shrinking its massive balance sheet.
Global monetary tightening and price pressures are becoming harder to ignore even for central banks in Asia's emerging markets which have to contend with protecting their economic recovery and stability.
Last week, Indonesia's central bank also surprised markets with 300 points of staggered hikes in the reserve requirement ratio for banks, while in Malaysia, the central bank omitted a line that some economists engendered as a potential shift in stance later this year.
Aside from worries that US rate hikes may lead to capital outflows from Asia's riskier emerging markets, investors are also weighing a potential invasion of Ukraine by Russia and rising tensions with the West that may lead to higher oil and gas prices and further contribute to global price pressures.
Those fears have also rattled US stock futures, which fell more than 1% in Asia trade after a volatile session on Wall Street overnight. Tech-heavy South Korean equities have shed about 8% in the last two weeks, while Indian stocks face a sixth day of losses.