Goldman Sachs Group has abandoned its expectation of monetary easing in Indonesia this year, while raising its expectations for interest rate hikes in India and the Philippines. The main reason for this adjustment is that the U.S.-Israel war against Iran has pushed up global energy prices and further intensified inflationary pressures in Asia.

In a report released on Tuesday, Goldman Sachs economists pointed out that central banks in economies with weak inflation expectation anchoring, high exchange rate sensitivity, and strong fuel price pass-through effects are more likely to adopt tightening monetary policies. This judgment has also prompted Singapore to further tighten its monetary policy ahead of schedule, while Australia has launched another interest rate hike.

Goldman Sachs stated in the report: “A large-scale supply shock poses challenges to monetary policy. The risks to our new baseline are two-way, but we still lean toward a larger and more persistent upward shock in energy prices.”

When this report was released, the Middle East conflict had lasted for four weeks, plunging the global energy market into severe turmoil. Goldman Sachs predicts that the Strait of Hormuz, which connects the Persian Gulf to global markets, will remain closed until mid-April, which will directly push up Brent crude oil prices—with an average price of $105 per barrel expected in March, rising to $115 per barrel in April, and then falling back to $80 per barrel in the fourth quarter of this year.

Affected by rising energy prices, Goldman Sachs economists said that inflation rates in Thailand and the Philippines may rise by more than 1 percentage point. However, they added that thanks to energy subsidy policies, the impact on China, Japan, and South Korea is “almost zero”. Overall, Goldman Sachs expects consumer prices across Asia to rise by an average of 0.6 percentage points, and since the outbreak of the Middle East conflict, the cumulative inflation rate in the region has been slightly higher than 1 percentage point.

In terms of economic growth, Goldman Sachs pointed out that the impact of the conflict is uneven: the downward adjustments to the economic growth expectations of China, Japan, South Korea, and Taiwan region of China are minimal, while the growth expectations of India, the Philippines, Thailand, and Singapore have been cut by more than 0.5 percentage points.

In addition, Goldman Sachs economists also said that except for Australia and Malaysia, the current account balances of most countries in Asia are expected to deteriorate. They predict that governments of various countries may relax fiscal regulation through subsidy policies, while central banks of various countries will increase monetary intervention to curb the pressure brought by imported inflation.

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