Nomura: Asian Central Banks' Hormuz Dilemma — Taylor Rule vs. Discretion
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Nomura analyzed the impact of a Strait of Hormuz energy disruption on Asian economies, assessing potential central bank responses. Unlike the 2022 Russia-Ukraine war shock, this disruption features both price and volume effects, though Asia's macroeconomic starting point is currently more benign, characterized by negative output gaps and lower core inflation.
Nomura revised down 2026 GDP growth forecasts for select economies while broadly raising CPI inflation projections by an average of 0.5 percentage points. The report contrasts analysts' discretionary policy views with modified Taylor rule estimates to determine which central banks are most likely to tighten further. The analysis suggests the Philippines and Singapore are the most probable candidates for additional policy tightening, whereas China and Thailand are the least likely. Notably, market pricing implies that rate hike expectations may be excessively high for several economies, including China, Thailand, India, South Korea, and New Zealand.
The analysis assumes a 2026 Brent crude average of $88.3 per barrel. Emerging Asia possesses weaker fiscal, energy, and foreign exchange buffers compared to developed Asia, rendering the former significantly more vulnerable to stagflation risks if a ceasefire does not hold. Direct inflation impacts are somewhat mitigated by fiscal interventions; however, the Philippines and Thailand are projected to experience more pronounced stagflationary effects.