• MPs concerned that it would unfairly benefit northern states
• Last delimitation based on 1971 census
• Opposition parties suggest this would widen north-south divide

Politicians from India's opposition parties in the southern states convened on Mar 5 to protest against the central government's plans to redraw parliamentary constituencies based on the 2011 census. They argue that this would disproportionately benefit the more populous northern states, leading to an imbalance in representation in parliament.

The protest was spearheaded by M.K. Stalin, the Chief Minister of Tamil Nadu, and supported by the national Congress party along with other parties from five southern states. These states, which have been experiencing faster economic growth than their northern counterparts, have also been more successful in controlling population growth.

Stalin proposed a resolution demanding that the constituency redrawing, known as delimitation, should continue to use the 1971 census figures until 2056. This would prevent the more densely populated northern states from gaining undue advantage in parliament due to their higher population growth rates. The 1971 census was the basis for the last delimitation exercise, which established the current 543 parliamentary seats.

The southern states have accused Prime Minister Narendra Modi's government of discriminatory practices, such as uneven federal fund distribution and unfair allotment of grants, among other issues. They fear that redrawing constituencies based on outdated population data could further exacerbate these inequities.

Despite the constitution mandating delimitation exercises following each national census, which occurs every decade, the 2021 census was skipped due to the pandemic. Consequently, despite demands, the Modi government has not yet undertaken this massive task of counting the current population, estimated at 1.4bn. The number of elective seats in parliament has remained unchanged at 543 since the 1970s, although a new parliament building with a capacity for 888 seats was inaugurated last year.

Home Minister Amit Shah assured that southern states would not be adversely affected by the delimitation efforts, while the BJP has dismissed Stalin's concerns as an attempt to foster a north-south divide. The BJP dominates in Uttar Pradesh, the most populous state, and its ally governs Bihar, with these two states representing about 26% of India's population and ranking among the poorest in the country.

70% women workforce participation by 2047 key to Viksit Bharat: Labour Secy (Business Standard)

Boost in domestic, int'l demand drives growth in services PMI in February (Business Standard)

RBI's forex swap, bond purchase to ease liquidity and lower borrowing costs (CNBC TV18)

RBI's record $77.5 billion short positions may impact rupee liquidity and forex reserves (Economic Times)

States completing projects in time may get priority in Centre's Special Loan Plan (Economic Times)

Exporters seek import duty cuts to counter US steel, aluminium tariffs (Business Standard)

India's urban population set to reach 900 mn by 2047, says PM Modi (Business Standard)

Rupee settles 19 paise higher at 87.00 against dollar amid fall in crude (Business Standard)

• Next Policy Meeting: April 7-9
• Current Policy Rate: 6.25%
• Last Decision: 25bps cut (Feb 7, 2024)
• Our Forecast: Hold

• Rationale: The RBI will wait to see the effect of the recent rate cut and therefore hold the rate in April. Easing inflation will provide sufficient room to keep the policy rate steady

In its latest meeting on February 8, the Reserve Bank of India's Monetary Policy Committee (MPC) implemented a significant shift by reducing the repo rate by 25 basis points to 6.25%. This move adjusted the standing deposit facility (SDF) to 6% and the marginal standing facility (MSF) to 6.5%. The unanimous decision underscored a strategic pivot towards bolstering economic growth. Notably, this rate cut occurred despite recent depreciation of the Indian Rupee (INR).

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Inflationary Trends

Inflation eased to a five-month low in January 2025, reaching 4.3% y/y, driven by declining food prices. Although headline inflation remained above 5% for much of 2024, risks are still skewed upwards, particularly due to imported inflation exacerbated by the INR's depreciation. Government measures, such as releasing food reserves and imposing export restrictions, have helped mitigate short-term price spikes. However, global uncertainties-especially volatile crude oil prices and geopolitical tensions-continue to pose challenges. The RBI projects inflation at 4.2% for FY26, still above the medium-term target of 4%. Further, there is expectation that heatwaves across north India could impact winter harvest, which may stoke food inflation again.

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Economic Performance

Economic activity showed signs of recovery in Q3 FY25, with private consumption improving and government expenditure increasing.India's GDP grew by 6.2% year-over-year in Q3-FY25, rebounding from a 5.4% increase in the previous quarter, driven by robust government spending and strong rural demand. This growth was supported by a good monsoon boosting agricultural output and resilient rural consumption, along with increased government capital expenditure post-elections. Gross Value Added (GVA) also matched the GDP growth rate at 6.2%, indicating a broad-based recovery. The National Statistical Office (NSO) has revised the annual GDP growth forecast for FY25 up to 6.5% from 6.4%, reflecting optimism for sustained growth. However, the dependency on government expenditure highlights ongoing challenges in sparking private sector investment.

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Recent PMI data indicate choppy trends in Q4 FY25, though continued recovery is anticipated, as public expenditure picks up and consumer demand strengthens. The February PMI showed a slight easing in the manufacturing sector but strong growth in services. With growth showing weakness and limited fiscal stimulus in the FY26 budget, the RBI has taken on a more significant role in driving growth. Consequently, the RBI implemented the rate cut in February and will likely wait to assess its impact before considering further reductions in Q2. Despite macroeconomic challenges, India's banking sector remains stable. Credit growth averaged 16% in 2024, driven by strong demand in retail lending, services, and infrastructure financing.

External Sector

Foreign exchange reserves stood at USD 640.3bn as of Feb 21, providing a buffer against external shocks. However, the depreciating rupee remains a concern, having weakened to a record low of 87.6 per USD due to a strong dollar and resilient US economic performance in recent weeks. The RBI may adopt a cautious approach to rate cuts to avoid exacerbating external vulnerabilities. Further, the threat of the reciprocal tariffs, expected to be levied from April 2 will also weigh on the RBI's decision and on India's overall external sector.

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Following the 25bps rate cut in February-the RBI's first policy easing move in 2025-the central bank is likely to hold rates in April. With the rupee under pressure and global uncertainties persisting, the RBI will pause to assess the impact of its policy shift. While inflation is expected to moderate further and economic growth remains a concern, the RBI may proceed with another rate cut subsequently in Q3.

Further Readings

Monetary Policy Meeting Statement, Feb 2025

Reserve Bank of India Consumer Confidence Survey, Feb 2025

Reserve Bank of India Household Expectations Survey, Feb 2025

• Govt to submit initial memorandum by Jun 2025
• OECD membership key to achieving developed economy status

The government aims to complete Indonesia's accession to the OECD in the next four to six years, EconMin Airlangga Hartarto said at a meeting with ambassadors of OECD countries. He urged the ambassadors to expedite Indonesia's accession process. The government plans to submit an initial memorandum by June 2025, after which it should adopt the accession roadmap, he added.

Furthermore, the EconMin noted that OECD accession will be key for Indonesia's goal to overcome the middle-income trap and achieve developed economy status by 2045. To achieve this, the government aims to boost GDP growth to 8% annually from the current level of about 5%.

We remind that Indonesia applied for OECD membership in Jun 2023, alongside Argentina, Brazil, Bulgaria, Croatia, Peru and Romania. Previously, Indonesia has been an OECD strategic partner since 2007.

Indonesia Aims to Round Off IEU-CEPA Talks by Mid-Year (Tempo)

Central Java Governor Claims 9 Companies Ready to Accommodate Ex-Sritex Workers (Tempo)

What to Know About Trump's Tariffs and Their Impact (Jakarta Globe)

Danantara to Announce Full Organizational Structure, Potentially Including Former Presidents (Jakarta Globe)

Prabowo consolidates ranks, orders more populist policies (The Jakarta Post)

Hartarto asks OECD nations to expedite RI's accession (Antara News)

BI Must Ensure Additional Liquidity Targets Productive Sectors (Koran Jakarta)

China Targets Five Percent Economic Growth by 2025 (Koran Jakarta)

Jokowi Wants to Form Super Party (Media Indonesia)

Tom Lembong Charged with Causing Rp 578 Billion in State Losses in Sugar Import Case (Detik)

• Next round of negotiations to start next week
• Trade minister claims only technical issues left
• Trade agreement is key for Indonesia as US starts global trade war

The government aims to complete the negotiations with the EU over the Comprehensive Economic Partnership Agreement (CEPA) in the first half of the year, trade minister Budi Santoso said. The next round of negotiations will take place next week, while only some technical issues remain, he added. So far, 19 rounds of negotiations have taken place over nine years.

We remind that back in Sep 2024, the previous trade minister Zulkifli Hasan said that negotiations were about 90% complete. Last month, EconMin Airlangga Hartarto had a call with EU Trade Commissioner Maros Sefcovic in a bid to accelerate the negotiations.

The trade agreement with the EU is key for the government, particularly in light of the deteriorating global trade conditions as the US started a global trade war. So far, Indonesia does not expect to see a tariff increase by the US, though we think it should not come as a surprise. On the other hand, talks with the EU have progressed difficult due to the dispute over palm oil as the EU banned palm oil imports on ecological concerns.

• BI has currency swaps with PBoC, BOK, MAS and BNM

Bank Indonesia and the Reserve Bank of Australia (RBA) renewed the AUD 10bn bilateral currency swap for another 5-year term, according to an official press release. The two central banks signed the first currency swap arrangement back in 2015. The latest extension took place in 2022 for a three-year term.

We remind that apart from RBA, BI also has currency swap arrangements with the PBoC (CNY 400bn), BOK (KRW 10.7tn), MAS (SGD 9.5bn) and Malaysia's BNM (MYR 8bn). The latest extension with RBA aims to facilitate bilateral trade and the settlement of transactions in local currencies.

Pakistan rises to second in Global Terrorism Index (Dawn)

Pakistan's industry paying double power costs of US, China, India: report (Dawn)

Clashes with Afghan forces continue along border (Dawn)

'Cut or no cut': businesses not on same page over policy rate (Dawn)

Portfolios still not 'official' after PM meets new cabinet inductees (Dawn)

IMF may allow cut in FBR target below Rs12.5tr (Express Tribune)

Delayed audit of state institutions alarms IMF (Express Tribune)

PTI reopens backchannels with JUI-F, eyes dialogue (Express Tribune)

Pakistan, UAE exchange MoU for investment in SEZs (The News)

Removal of GST on POL products: Oil refineries seek minister's intervention (Business Recorder)

• Borrowing was much below maturing amount, reflecting treasury's strategy to prolong domestic debt maturity period
• Demand remained healthy
• Cut-off yields held steady

The government raised PKR 568.7bn through the sale of T-bills in a scheduled auction on Wednesday, falling short of the PKR 700bn target, according to the State Bank of Pakistan (SBP). This marks the second consecutive auction where borrowing failed to meet the target. Additionally, the amount raised was significantly lower than the PKR 946bn in maturing securities, reflecting the government's efforts to reduce reliance on short-term debt instruments to finance its fiscal deficit.

Extending the maturity profile of domestic debt is a key indicative target under the ongoing IMF loan program. The weighted average time-to-maturity target for end-December 2024 is set at 2.8 years, a goal that has been comfortably exceeded, according to Dawn News, citing a senior official. The government aims to raise PKR 3.2tn from T-bills sales between March and May, against maturing securities worth PKR 3.8tn.

Investor appetite for sovereign instruments remained strong, with total bids reaching PKR 1.2tn in the latest auction. Meanwhile, cut-off yields remained largely unchanged from the previous T-bills auction. Yields had risen in the last two auctions after the SBP signalled in January that a "cautious monetary policy stance" was necessary amid a likely rise in inflation, suggesting that the easing cycle was nearing its end. However, with inflation easing to a near-decade low of 1.5% y/y in February, the central bank may have room for another rate cut.

• Next policy meeting: March 10, 2025
• Current policy rate: 12.0%
• Last decision: Cut by 100bps (January 27, 2025)
• Our forecast: Cut by 100bps
• Rationale: inflation in February eased to lowest since Sep 2015, while external sector stability to provide additional comfort

We expect the State Bank of Pakistan (SBP) to extend its rate-cutting cycle as inflation touches the lowest in nearly nine-and-a-half years, while the external sector remains stable. The response to the January inflation reading is likely to be tamer, as was witnessed in the previous policy meeting, given the central bank's focus on maintaining a "sufficiently positive" real interest rate on a forward-looking basis. We expect a seventh consecutive policy rate cut of 100bps next week to 11.0%.

Since June 2024, the SBP has reduced the key rate by a total of 1,000bps. However, in January, it emphasized the need for a "cautious monetary policy stance" due to inflationary risks arising from the fading base effect, anticipated energy tariff adjustments, and additional taxation required to meet IMF-imposed revenue targets. Given these factors, we expect the central bank to signal the conclusion of its current easing cycle in its upcoming policy statement.

Inflation environment

CPI inflation eased to 1.5% y/y in February, marking its slowest pace since September 2015, primarily due to lower food, fuel, and electricity costs. Inflation has been on a downward trend in recent months, supported by a favourable base effect, which is likely to keep inflation contained at least until April 2025. A stable exchange rate, higher agricultural output, subdued global oil prices, and weak domestic demand have also helped keep inflation in check. However, underlying price pressures remain high, with core inflation in rural areas sustaining double-digit growth at 10.4% y/y in February.

The SBP expects inflation to rise gradually in the coming months, reaching around 7% y/y by June. Despite this, the central bank has significantly lowered its average inflation forecast for FY25 to 5.5%-7.5%, down from the 11.5%-13.5% projection made in July 2024. This outlook is more optimistic than the IMF's October forecast, which estimated inflation at 9.5% for the ongoing fiscal year. During July and February of FY25, inflation averaged 5.9%, a sharp decline from 28.0% in the same period last year.

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External sector

Although early signs of strains have emerged, Pakistan's external position remains largely stable. The current account in January turned negative for the first time since July last year, posting USD 420mn deficit, as strong workers' remittances and exports were offset by a jump in imports. Moreover, weak financial inflows and debt repayments have put pressure on foreign exchange reserves, which stood at USD 11.2bn as of Feb. 21, down from a multi-month high of USD 12.1bn in mid-December.

Despite these challenges, the SBP in January upgraded its current account forecast for FY25. It projected a range between a small surplus and a deficit of 0.5% of GDP, an improvement from the previously estimated 0-1% deficit. It also expected net financial inflows to improve over the coming months owing to lower external debt servicing. As a result, forex reserves are seen exceeding USD 13bn by June.

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GDP growth

Economic activity remains sluggish, as reflected in major crop estimates and large-scale manufacturing output. Cotton production has dropped to its second-lowest level in the country's history, while wheat output is expected to decline by 11% y/y this year. Additionally, large-scale industrial production has been contracting since June 2024 - except for a brief rebound in October - due to high input costs, expensive borrowing, and weak household spending.

However, the State Bank of Pakistan (SBP) holds a more optimistic view. Citing a significant rise in automobile, fuel, and fertilizer sales, as well as increased import volumes, electricity generation, and credit disbursement to the private sector, the central bank argues that economic activity is gaining momentum. Regarding the ongoing contraction in manufacturing, the SBP attributes it to a few low-weight industries, such as furniture, while highlighting improvements in key sectors like textiles, food and beverages, and automobiles.

Despite this optimism, the central bank appeared slightly more cautious about GDP growth following Q1 data, which showed a 0.9% y/y expansion - the slowest in five quarters. While it previously expected growth to be in the upper half of its 2.5%-3.5% forecast range, it now projects the economy to grow within that range in FY25.

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Conclusion

Overall, the sharp moderation in inflation will prompt the SBP to deliver another rate cut in its upcoming policy meeting. Further, the benign external sector outlook coupled with greater stability in the exchange rate would provide additional comfort to the central bank to cut the key rate. In an interview with Bloomberg following the January, SBP governor Jameel Ahmed said that easing prices and lack of pressure on the external account give the central bank confidence to "revise (the policy rate) slightly down".

A potential uptick in inflation from May onward, along with the necessity of maintaining a tight monetary stance under the IMF loan program, is likely to compel the SBP to pause its easing cycle after the next meeting.

• Number of unemployed only slightly higher y/y; number of employed expands significantly
• Underemployment rate improves slightly y/y but is higher m/m
• Youth unemployment rate moves to double digits in January but is lower y/y

The unemployment rate was 4.3% in January, up from 3.1% in December, but lower than 4.5% in Jan 2024, according to the results of the latest labour force survey (LFS) announced by the statistics office on Thursday. In the y/y comparison, the number of unemployed edged up 0.3% to 2.16mn in January. The number of employed increased by 5.6% y/y to 48.49mn. The labour force hence rose by 5.4% y/y to 50.65mn.

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In January, the largest y/y increases in the number of employed persons were reported for agriculture and forestry; wholesale and retail trade, repair of motor vehicles and motorcycles; and accommodation and food service activities. The largest y/y decline was reported for manufacturing.

The labour force participation rate (LFPR) among Filipinos 15 years and older was 63.9 in January, higher y/y but lower m/m. The average number of hours worked per week was 40.4, lower both m/m and y/y. The underemployment rate improved y/y, but was higher m/m. The youth unemployment rate was 12.0% in January, which compares with 9.1% in December and 13.4% in Jan 2024.

Services, agriculture and industry accounted for 61.6%, 21.1% and 17.2% of the total employed persons, respectively. Wage and salary workers accounted for 63.0% of employed persons, followed by self-employed persons without any paid employee (28.2%); unpaid family workers (6.6%); and employers in their own family-operated farm or business (2.2%).

All in all, the January LFS data are mostly positive, in our view. The number of unemployed rose only slightly y/y. The number of employed increased y/y at a robust rate, which is a six-month high. On the other hand, the underemployment rate improved only slightly y/y, the number of the underemployed was higher y/y, and manufacturing was the sector with the largest y/y decline in employment.

Philippine unemployment rate rises to 4.3% in January (INQUIRER)

Philippine banks' exposure to real estate sector rises at end-2024 (BusinessWorld)

Nickel Asia, DMCI Mining to partner on nickel processing plant in PHL (BusinessWorld)

Term deposit yields inch down as inflation eases (BusinessWorld)

BOC surpasses January revenue target (Philippine News Agency)

Philippines beats pre-pandemic tourism revenue (INQUIRER)

PBBM declares May as 'Ease of Doing Business' Month (Philippine News Agency)

Resupply mission to Ayungin troops completed without Chinese harassment (INQUIRER)

• Uncertainty over global economic policies requires continued close monitoring

The February inflation data support the BSP's prevailing assessment that inflation will stay within the 2-4% target band over the policy horizon, the central bank said on Wednesday. However, close monitoring remains appropriate due to uncertainty over global economic policies and their potential effects on the Philippine economy.

Headline inflation decelerated to 2.1% y/y in February from 2.9% y/y in January. The latest reading was lower than market's expectations and BSP's forecast range. The CPI rose by 2.5% y/y in Jan-Feb, within the target band.

The lower headline inflation was driven primarily by lower food inflation, especially for vegetables because of improved supply. The retail prices of rice fell further, partly due to lower imported rice prices. Non-food inflation moderated as well. The BSP noted contributions coming from easing inflation for housing, water, electricity, gas and other fuels, as well as decreases in gasoline and diesel prices.

The central bank will consider carefully all new available information at its next monetary policy meeting on Apr 3, the press release said. The CPI data for March will be released on Apr 4.

• BNM sees limited impact on inflation from wage-related policies, petrol subsidy rationalization
• Growth momentum expected to be sustained this year
• Rising external risks to complicate future rate decisions

Bank Negara Malaysia on Thursday left its overnight policy rate unchanged at 3.0%, citing favourable outlook for inflation and economic growth, it said in a statement. The decision was widely expected as all economists polled by Reuters and Bloomberg had predicted the central bank to hold its key rate, which was last adjusted with a 25bps hike in May 2023.

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BNM expected inflation to remain manageable in 2025, as it saw limited pressure from domestic policy measures, such as planned petrol subsidy rationalization and a hike in minimum wage, which came into effect from February 1. Moreover, global commodity prices were also projected to continue to trend lower.

In January 2025, headline inflation stood at 1.7% y/y, while core inflation was at 1.8% y/y. Although BNM did not provide an official inflation forecast, the government estimates inflation will accelerate to a range of 2.0%-3.5% in 2025, up from 1.8% in 2024.

Meanwhile, BNM reiterated that the current monetary policy stance remains supportive of the economy. It expected growth momentum to be sustained in 2025, following a solid 5.1% expansion in 2024, anchored by domestic demand amid tight labour market conditions as well as robust investment activity. However, external headwinds were seen posing challenges, with exports projected to expand at a more moderate pace. Both the government and BNM forecast GDP to grow between 4.5% and 5.5% in 2025.

BNM also noted that external factors continue to influence the ringgit, which has depreciated by 2.0% against the U.S. dollar since the U.S. presidential election. While global policy uncertainties may cause currency volatility, the ringgit is expected to find support from narrowing interest rate differentials between Malaysia and advanced economies, as well as the country's strong economic fundamentals and structural reforms, it added.

The policy meeting took place against the backdrop of rising external risks, including economic slowdown in China, Malaysia's largest trading partner, and potential U.S. trade tariffs. These uncertainties could complicate future monetary policy decisions. While BNM may face pressure to ease rates to support growth, increasing inflationary pressures could limit its policy flexibility. Market expectations suggest the central bank will keep the OPR unchanged at least until the end of 2025.

Govt to issue special foreign investor pass from April to allow longer stay - Saifuddin (The Edge Malaysia)

Anwar chairs 2025 National Financial Council meeting in Putrajaya (The Edge Malaysia)

Miti: Malaysia expands economic cooperation, reduces dependence on single market (The Edge Malaysia)

Ministry mulls empowering cops to tackle environmental crimes (Free Malaysia Today)

Bersatu split over who should lead party into GE16, say insiders (Free Malaysia Today)

Two Bills receive royal assent (The Star)

China leads as over 22,000 MM2H applications approved since 2015, says tourism minister (Malay Mail)

Foreign Ministry: Malaysia to oppose Gaza annexation at OIC extraordinary session, reaffirm support for Palestine (Malay Mail)

FMM: No more taxes please, manufacturing sector is at chokepoint (The Sun Daily)

• Nearly half of respondents expect a 5%-10% increase in expenses
• Firms plan to raise prices to mitigate impact

A vast majority of Malaysian manufacturers anticipate rising operational expenses in 2025, primarily driven by higher wage costs, according to a survey by the Federation of Malaysian Manufacturers (FMM). Nearly half of the respondents expect a 5%-10% increase in expenses, while 26% foresee a jump of over 10%.

The cost pressures stem from the government's decision to raise the monthly minimum wage from MYR 1,500 to MYR 1,700, which took effect on February 1. Additionally, a proposed 2% mandatory Employees Provident Fund (EPF) contribution for foreign workers is currently under debate in the parliament.

Highlighting the survey's findings, FMM President Tan Sri Soh Thian Lai noted that rising input costs remain the top concern for manufacturers. To mitigate wage-related pressures, firms plan to adjust factory-gate prices, optimize costs, or boost productivity. Despite these challenges, manufacturers remain generally optimistic about business conditions and growth prospects in 2025, he added.

• Malaysia to pay the UK firm USD 250mn over next decade
• The pact seen adding 1pp to nation's GDP
• The 10-year deal to enable local companies to design their own semiconductors

Malaysia has signed an agreement with UK-based Arm Holdings Plc to acquire chip designs and technology, a move that PM Anwar Ibrahim described as the beginning of the country's "second semiconductor wave". Under the deal, the UK-based firm will provide Malaysia with intellectual property licences and compute subsystems (CSS) worth MYR 1.1bn (USD 250mn), to be paid over the next ten years.

Economy Minister Rafizi Ramli stated that the agreement will enable Malaysia to go beyond back-end chip assembly and accelerate its ambitions to design its own semiconductors. The government aims to establish 10 chip companies with USD 20bn annual revenue and increase semiconductor exports to MYR 1.2tn by 2030. Rafizi also noted that the deal could contribute an additional one percentage point to Malaysia's GDP.

Anwar highlighted three key aspects of the partnership with Arm: the creation of a comprehensive training program to develop 10,000 integrated circuit (IC) design engineers, privileged access for select Malaysian companies to Arm's advanced technology and IP portfolio, and support for the development of locally designed semiconductor products. Additionally, Arm will open its first ASEAN office in Kuala Lumpur.

Malaysia is already a key hub for chip testing and packaging, ranking as the world's sixth-largest semiconductor exporter. The country accounts for about 13% of global chip assembly, with major tech firms like Intel Corp, GlobalFoundries Inc., and Infineon Technologies AG operating factories there.

However, Malaysia has yet to make significant strides in chip design. Last year, the government launched the National Semiconductor Strategy (NSS), committing MYR 25bn to strengthen the country's semiconductor industry and expand its capabilities.

• Mongolia joins sustainable mining initiative TSM
• Uranium deposits, critical minerals, and gold projects discussed during Canadian convention
• Logistics crucial in terms of critical minerals, Mongolia landlocked between Russia and China

A Mongolian delegation is currently attending a mineral convention in Canada, where the minister of industry pledged Mongolia will intensify exploration of mineral resource deposits. He also said the government's plan is to launch new extraction projects and expand raw material processing on the back of state financing, private sector funding, and foreign investment. With regard to more specific results, Mongolia announced it has joined the sustainable mining initiative TSM.

During the convention, the Mongolian delegation and Canadian representatives discussed uranium projects, critical minerals, and gold deposits. In 2024, Mongolia's gold exports equaled USD 899.4mn, making gold the third most important commodity export after coal and copper. The country is estimated to have over 100 gold deposits, but only 15 are deemed economically viable at present. Significant uranium deposits have traditionally been tied to Russian companies and more recently France's Orano signed a USD 1.6bn mining project with the government.

With regard to critical minerals, Mongolia boasts deposits of at least 11 such resources. Last year the US secretary of state visited Mongolia for related discussions and the UK has also expressed similar interest. What could discourage foreign investors is the establishment of a Mongolian sovereign fund in 2024, which requires that the government own at least a 34% stake in 'strategic' mines. In addition, Russia and China are crucial logistically as Mongolia is landlocked between the two.

• FX swap with National Pension Service mainly responsible for decline in FX reserves
• Increased value of non-USD assets partially offsets drain due to NPS swap

The foreign exchange reserves fell further by 0.4% m/m to USD 409.2bn as of end-February following the 1.1% m/m reported in January, according to data released by Bank of Korea. The decline in FX reserves happened despite the fact that the USD dollar index declined by 0.5% in February which boosted the value of non-USD reserves.

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By type of assets, FX reserves in securities fell by USD 4.6bn m/m to USD 357.4bn as of end-February, whereas FX deposits rose by USD 2.7bn m/m to USD 28.1bn. In y/y terms, FX reserves fell by 1.6% y/y which was the sharpest decline since July 2024. South Korea's reserves still ranked the 9th largest in the world even though they have been eroded since the post-pandemic period when they peaked at USD 469bn in Oct 2021.

The main reason for the decline in reserves was the increased usage of Bank of Korea's FX swap line with the National Pension Service (NPS), the BOK said. The BOK-NPS swap line was recently boosted to USD 65bn in Dec 2024 and could have been used by the NPS to hedge its exposure to USD assets. Under the FX swap scheme, the NPS taps BOK's FX reserves which are later on returned in full to the BOK. Thus, the decline in FX reserves due to the swap line should be only temporary.

• Yields decline after BOK's Feb 25 decision to cut key interest rate

The Treasury sold KRW 5.8tn of 30-year bonds at a yield of 2.59% on Wednesday (Mar 5), according to information provided by the finance ministry. In comparison, the government sold the same type of Mar 2055 bonds at 2.74% yield in an auction last month. The decline in yields happened across the entire yield curve after the Bank of Korea decided to cut its key interest rate by 25bps in its meeting on Feb 25. Nonetheless, the bid-to-cover ratio in today's auction weakened to 2.41 from 2.8 in last month's auction.

• Government to create KRW 50tn fund at KDB, while commercial banks will match it with KRW 50tn
• Fund's resources to be raised by issuing strategic industry bonds
• Vaccines, hydrogen, future mobility, and AI added to strategic technology sectors

The government announced a plan to support high-tech industries with a KRW 100tn (USD 69.3bn) fund in which both public and private institutions will participate, local media reported after a meeting of economic-related ministers on Wednesday (Mar 5). The plan will consist of KRW 50tn fund created at the Korea Development Bank (KDB) over the next 5 years, of which KRW 37tn will be newly-injected resources and the rest will be the portion of the semiconductor low interest loan funds that will be operated in the 2025-2027 period.

In addition, commercial banks will match the KRW 50tn fund created by KDB, with KDB expected to participate as a subordinate to alleviate the burden on banks. Banks will be able to apply a 100% conversion rate to risk-weighted assets when investing in the fund instead of the typical 250%-400% conversion rate in order to improve their capital soundness.

The target industries that will be affected by the fund include semiconductors, secondary batteries, displays, bio, defense, and robots. In addition, the government has added vaccines, hydrogen, future mobility and transportation means, and AI to the list of national strategic industries. The support methods for the fund include equity investment, low-interest loans and buyer financing.

The fund's resources will be raised by issuing strategic industry bonds which are guaranteed by the government. Operating funds such as various expenses and interest costs will be also covered by KDB's own resources. In addition, banks are also expected to participate with their own resources. Thus, the actual fiscal cost for the government will be minimal, in our view, and would cover only a potential requirement to raise the capital of the KDB.

• Inflation remains at 2% within due to won's weakening
• Core inflation also eases slightly to 1.9% y/y in February
• Restaurant and hotel prices continue to contribute the most to inflation

CPI inflation eased slightly to 2.0% y/y in February from 2.2% y/y in January, remaining in the 2% range for a second month in a row, according to data released by stat office Kostat. CPI inflation remained influenced by the depreciation of the Korean won which was triggered by Donald Trump's election as US president and the surge in domestic political tensions in December. Nonetheless, inflation remains tame and exactly at the 2% target of the central bank, which gives leeway to the central bank to change policy depending on its outlook for growth. We remind that the BOK cut its policy rate by 25bps in February and is looking to ease more in the future.

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Core inflation (CPI excluding agricultural prices and oils) also eased slightly to 1.9% y/y in February from 2.0% y/y in January. At the same time, prices of agricultural products and oil decelerated to 3.0% y/y growth from 4.5% y/y previously. Thus, there was a broad moderation of inflationary pressures in February, albeit it was only modest.

Fresh food prices, which were a substantial inflationary force in H1 2024, declined by 1.4% y/y in February on high base effects. In addition, the government's policies to reduce food prices for the Lunar New Year holiday also played a role. Fresh fruit prices, in particular, posted a notable decline by 5.4% y/y which came after they surged by 41.2% y/y in February 2024.

The biggest contributor to CPI inflation remained restaurant and hotel prices which rose by 2.9% y/y and added 0.42pps to inflation, according to our calculations. Housing and utilities prices (up by 2.0% y/y), transport prices (up by 2.2% y/y) and food prices (up by 2.0% y/y) were also significant contributors to growth, but they grew at rates closer to headline inflation. On the other hand, recreation and culture prices (up by 0.4% y/y), communication prices (up by 0.1% y/y) and alcoholic beverages prices (up by 0.3% y/y) posted growth rates significantly lower than headline inflation.

Going forward, inflation is likely to remain stable and close to the 2% level as the weakening of the Korean won is likely to be offset by the subdued domestic demand. The central bank's easing of monetary policy and the resolution of the political crisis in the country should stabilize consumer demand down the line, but we do not expect demand-side pressures on prices to become visible at least until H2 2025. On the other hand, the trade war started by the Trump administration also poses risks for higher inflation in the longer-run due to the threat of further won depreciation and the potential for higher global inflation, in our view.

S. Korean fighter jet accidentally drops bombs on civilian village, injuring seven (Korea Herald)

S. Korea, US stage combined firepower drills near inter-Korean border (Korea Herald)

S. Koreans felt anxiety, depression at increased rate in 2024: survey (Korea Herald)

Lee Jae-myung says his trials will halt if elected president. Is it true? (Korea Herald)

Hyundai, Kia ready to ramp up EV output in Europe, US (Korea Economic Daily)

Trump says Korea interested in Alaska gas project; Korean energy firms skeptical (Korea Economic Daily)

S. Korea launches 'Top-Tier Visa' to attract AI, semiconductor, and biotech experts (Chosun)

Exclusive: U.S., Russia likely to intervene in N. Korean POWs' bid to reach S. Korea (Chosun)

11 years and counting: Korea struggles to break the $40,000 income barrier (Chosun)

Survey reveals growing anti-China sentiment among young South Koreans (Chosun)

Foreign Ministers of S. Korea, Poland Discuss Bilateral Ties, Defense Cooperation (KBS)

South Korea to Invest 100 Trillion Won to Counter AI and Chip Supremacy War (Business Korea )

S. Korea, US to kick off major springtime exercise next week (Korea Times)

Consumer prices rise at 2% level for 2nd month in February on weak Korean won (Korea Times)

• Court expected to continue deliberation process on Friday this week
• Potential appointment of ninth constitutional judge unlikely to influence timing

Constitutional Court's ruling on President Yoon's impeachment trial is expected by the end of next week, according to sources with knowledge of the matter cited in local media. The Court is expected to continue its deliberation process on Friday (Mar 7) and will likely reach a decision next week. Since the previous two impeachment rulings in the trials of former Presidents Roh Moo-hyun and Park Geun-hye came on a Friday, the most likely date for a decision is Friday (Mar 14).

In addition, the previous two rulings came up to 14 days after the court finished hearing the final arguments of the case, which in Yoon's trial happened on Feb 27. Thus, the second week of March is the most likely date for a ruling. That said, the Constitutional Court still hasn't specified a date to announce its verdict. The court is currently reviewing two other impeachment trials, the ones of Prime Minister Han Duck-soo and Minister of Justice Park Sung-jae, but it has prioritized the president's case.

Meanwhile, a potential appointment of a ninth constitutional judge by acting President Choi Sang-mok is not expected to delay the timing of the decision. Choi is reportedly considering to appoint Ma Eun-hyeok as a constitutional judge because the opposition party has linked his appointment with the advancement of key bills in parliament. Yoon's impeachment is widely expected to be confirmed by all 8 present judges.

Sri Lanka central bank not restrained by a narrowing IMF target on domestic assets in 2025 (Economy Next)

EC mandates 25% youth, 50% female representation in LG Polls nominations (Ada Derana)

President pledges structural reforms for modernised Customs (Daily FT)

AKD discusses realisation of revenue targets with IRD (Daily FT)

Prices for tea drop in February (Daily FT)

Litro Gas price revision today (Daily Mirror)

Geopolitical shifts could propel Sri Lanka as an agricultural export hub (Economy Next)

Next Policy Meeting: Mar 26

• Overnight Policy Rate (OPR): 8.0%
• Previous Decision: Hold (Jan 29)
• Our Forecast: Cut, 25bps
• Rationale: Benign inflation provides sufficient headroom, GDP growth emerges as concern

In alignment with our predictions, the Central Bank of Sri Lanka (CBSL) maintained the overnight policy rate (OPR) at 8% during its inaugural Monetary Policy Committee (MPC) meeting of 2025, held on Jan 29. Notably, the CBSL made a pivotal decision in its Nov 27, 2024 meeting to unify interest rates and establish the OPR as the central monetary policy tool, replacing the previous dual-rate system. The Standing Deposit Facility Rate (SDFR) and Standing Lending Facility Rate (SLFR) were adjusted to 7.5% and 8.5%, respectively, maintaining a margin of ±50 basis points around the OPR. This structural adjustment reflects a more streamlined and supportive policy framework designed to bolster the economy amidst persistent deflation and subdued economic activity. We anticipate a 25bp reduction in the key rate during the upcoming March policy meeting, driven by ongoing deflationary trends and potential economic slowdowns influenced by global economic headwinds.

Data Download

Inflationary Trends

The inflation landscape has undergone a significant transformation, with deflation now dominating the scene. In February, the Colombo Consumer Price Index (CCPI) recorded a y/y decline of 4.2%, primarily driven by falling prices for fuel, electricity, and gas. The National Consumer Price Index (NCPI) also experienced a deeper contraction of 4.0% y/y in Jan. While short-term deflationary pressures are expected to persist, inflation is projected to stabilize around the 5% target in the medium term. Core inflation, which measures underlying demand, has also moderated substantially. The CBSL forecasts that inflation will remain negative in the near term before turning positive by mid-2025 as fuel and transport costs stabilize and food prices recover, as outlined in their latest monetary policy statement.

Economic Expansion

The economy is gradually regaining momentum, with real GDP growth reaching 5.5% y/y in Q3 2024, up from 4.7% y/y in Q2. The industrial sector spearheaded this recovery with a robust growth rate of 10.9% y/y, driven by utilities, chemicals, metals, and wood products. Agriculture experienced a 3.0% y/y growth, while the services sector expanded by 2.6% y/y, particularly benefiting from tourism-related industries such as accommodation and insurance. This economic rebound has been supported by reforms under the IMF program and a strong recovery in tourism, which saw a 38% increase in tourist revenues in 2024. Q4 growth is expected to surpass expectations. The government projects over 4% growth for 2025; however, global challenges such as potential US tariffs, Federal Reserve policy changes, and a possible slowdown in Europe present risks to growth.

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External Sector

The external sector has shown mixed outcomes recently. The merchandise trade deficit widened in January, while the current account surplus improved. Although export earnings are increasing, the import growth far outpaces that of exports - a trend likely to continue as restrictions on vehicle imports are lifted. Increased tourism revenue and remittances have positively impacted the external current account. The Sri Lankan rupee appreciated by 10.7% throughout 2024 but faced a 0.7% year-to-date depreciation early in 2025. The successful completion of external debt restructuring, except for a minor portion, in December 2024 has enhanced the country's external outlook. By the end of 2024, Gross Official Reserves (GOR) stood at USD 6.1 billion, bolstered by a renewed three-year Bilateral Currency Swap facility with the People's Bank of China.

Outlook

The CBSL is likely to reduce its interest rate in March due to anticipated moderation in economic activity. The subdued inflation outlook will provide sufficient room for the CBSL to lower interest rates without compromising economic momentum. Additionally, uncertainties such as delays in fund disbursements, geopolitical risks, and potential fiscal policy shifts following parliamentary elections may influence future policy decisions. The CBSL is expected to adopt a cautious stance, balancing its focus on economic recovery with maintaining financial stability.

• Merchandise trade remains firmly in deficit
• Worker remittances increase supports secondary income account surplus
• Services surplus trends up

The current account surplus rose by 60.6% y/y to USD 130.2mn in January, according to CBSL data. This positive shift reflects a robust recovery and adjustments in the external sector dynamics, stemming primarily from an improvement in the services surplus and the secondary income surplus. It was also supported by an easing of the primary income deficit.

In more detail, despite the overall current account surplus, the trade balance deteriorated, deepening to a deficit of USD 732.7mn in January 2025. This 35.4% y/y increase in deficit was primarily driven by a rise in merchandise imports by 18.1% to USD 1.79bn, overshadowing the 8.5% y/y increase in merchandise exports, which totaled USD 1.05bn. Textiles & garments and tea dominated the exports, while fuel, machinery & equipment and textiles drove the import growth. Agriculture exports rose 13.4% y/y in January, while industrial exports grew 7.4% y/y. Mineral exports declined by 26.5% y/y during the month. All three categories of imports - consumer goods, intermediate goods and investment goods recorded a y/y uptick.

In addition, the services account showed resilience, posting a net surplus of USD 418.3mn in January 2025, up 5.2% y/y. Key contributors to this growth were increases in inflows from services like travel, sea transport, and IT/BPO, which saw significant growth due to global outsourcing trends and the country's competitive offerings in these sectors. Air transport and sea transport dominated the services outflows.

The primary income account improved substantially, with the deficit narrowing by 55.5% y/y to USD 113.0mn in January 2025. This improvement was largely due to reduced outflows on the investment income, especially lower payments on government and central bank liabilities abroad.

The secondary income account, mainly reflective of remittances, showed a robust increase. The net inflow rose by 16.5% y/y to USD 557.7mn in January. Worker remittances, a vital component, increased by 17.5% y/y to USD 573.0mn, underscoring the critical role of the diaspora in supporting the domestic economy.

Overall, Sri Lanka's external sector shows signs of both pressure and potential, with a growing current account surplus buffered by challenges in the trade deficit. The services sector and remittances continue to be bright spots, highlighting avenues for strategic enhancements in policy and economic management to capitalize on these strengths.

• Yields declined across the board
• Investor sentiment strong yet cautious

The government auctioned LKR 167bn worth of treasury bills on Mar 5, according to an official press release by the Central Bank of Sri Lanka. The issuance was in line with the overall target. However, unlike the recent auctions, the government chose to deviate from the individual targets set for each tenor and auction more of the one-year T-bills.

More specifically, the government issued LKR 22bn worth of 3-month T-bills, with a yield of 7.53%. The yield was down by 4bps. The 3-month issuance was in line with the set target. Meanwhile, the government auctioned only LKR 61.05bn worth of 6-month T-bills (about 76.3% of planned auction). The yield was down by 1bp to 7.86%. On the other hand, the government issued LKR 83.9bn worth of one-year T-bills, exceeding the issuance target by 29.1%. The bid to auction ratio stood at 1.4, down from 2 in the previous auction, underscoring strong yet cautious investor sentiment.

Looking at the yields, the cost of borrowing trended down for the government. Declining yields are a huge positive for the government of Sri Lanka. Further, the recent IMF review and approval for disbursement will also support the economic recovery process and induce investor confidence, in our view.

Newin meets Thaksin (Bangkok Post)

Neutral stance key for Thailand, says Phumtham (Bangkok Post)

Several banks reduce loan rates, following the regulator (Bangkok Post)

Unsold units rise as Thailand's property market faces profit squeeze (The Nation)

Thai business leaders propose trade 'war room' (Bangkok Post)

Thai Govt Admits Other Countries Were Willing To Take Uyghurs (The Nation)

Election Commission to skip meeting on Senate vote probe (Bangkok Post)

• Headline inflation decelerated to 2.9% y/y, while core inflation also eased marginally to 2.87%
• We expect inflation to pick up in the coming months as both monetary and fiscal policy remain accommodative

Headline consumer price index (CPI) inflation moderated to 2.9% y/y in February, according to data from the General Statistics Office (GSO). This slowdown was partly attributed to the fading seasonal effects of the Lunar New Year. Core inflation, which excludes volatile components such as food and energy, also saw a marginal decline, easing to 2.87% y/y from 3.07% y/y in the previous month.

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While food prices exhibited a slower pace of increase as the holiday effect subsided, inflationary pressures persisted in housing, healthcare, and medical services. These three categories recorded annual inflation rates of 3.1%, 5.1%, and 14.5%, respectively, contributing significantly to overall inflation, which stood at 2.8%. The sharp rise in healthcare costs was primarily driven by adjustments to medical service fees following the implementation of Circular 21/2024/TT-BYT.

Meanwhile, transportation, education, and communication were the only categories to register price declines in February, with inflation rates ranging from -0.6% to -2.7% y/y.

Looking ahead, inflation is expected to rise in the coming months as both fiscal and monetary policies remain accommodative. Additionally, the government appears to have a higher tolerance for inflation in pursuit of robust economic growth. The National Assembly has approved an upward adjustment of the inflation target for this year to a range of 4.0%-4.5%.

FDI reaches nearly USD 7 billion by end of February (Vietnam news)

Gov't must prioritise administrative restructuring, economic growth: PM (Vietnam news)

Vietnam to pilot digital currency exchange (The investor)

Ministry proposes solutions to achieve 12% export growth target (Vietnam plus)

Government bond auctions raise over 29 trillion VND in February (Cong thuong)

SBV pauses T-Bill issuance, provides liquidity via OMO channel (CafeF)

PM calls on SBV to lower policy rate (CafeF)

• Industrial production grew by 17.2% y/y in February, partly attributed to the low base last year
• Key sectors maintained positive growth, led by motor vehicles, machinery and textiles
• We expect the growth to moderate in coming months as seasonal effect fade, but industrial expansion remains robust

Industrial production recorded a significant 17.2% y/y increase in February, according to data from the General Statistics Office (GSO). This strong growth was primarily driven by the low base effect, as the Lunar New Year occurred in February last year, dampening output during that period.

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Several key industrial sectors sustained positive momentum. Manufacturing output rose by 20% y/y, while the computer and electronics segment expanded by 15.6% y/y. The machinery sector also posted impressive growth of 24.5% y/y. The motor vehicle and textile sectors were the top performers, surging by 76.1% and 30.8% y/y, respectively. In contrast, the mining and refined petroleum industries lagged behind. Mining output grew marginally by 0.4%, while refined petroleum production contracted by 10.4% and 9.9% YoY, respectively.

Industrial employment data reflected the sector's solid growth. Employment in the manufacturing sector expanded by 4.8% y/y in February. The machinery subsector recorded the highest employment increase at 7.4% y/y, while employment in the motor vehicle sector also grew by 6.1% y/y.

Looking ahead, industrial production is expected to maintain its positive momentum, albeit with a more stable growth trajectory. Fiscal stimulus measures and accommodative monetary policies are anticipated to support further recovery in output in the coming months

• Total retail sales in February are estimated at VND 561.6tn, marking an 9.4% y/y increase
• Service revenue experienced stronger growth compared to retail sales of goods
• Retail sales is likely to maintain its sustainable growth, supported by government's measures and the ongoing recovery of domestic demand

Total retail sales of good and service in February are estimated at VND 561.6tn, marking a 9.4% y/y increase, according to the General Statistics Office (GSO). This growth is attributed to higher consumption demand and strong recovery of tourism sector. Adjusted for inflation, retail sales growth stood at 6.2% y/y in the first two months of the year.

Data Download

Regarding sectors, retail sales of goods posted an 8.3% y/y increase, while accommodation and food service revenue rose by 12.7% compared to February 2024. Tourism and travel services expanded by 17.3%, driven by a surge in international and domestic travel.

We expect retail sales to maintain its sustainable growth, supported by government's measures and the ongoing recovery of domestic demand.

• The SBV has officially ceased T-bill issuance after a prolonged period of issuing using this channel
• This move sends a strong signal about the SBV's commitment to maintain low interest environment despite increasing market pressure

The State Bank of Vietnam (SBV) has officially ceased T-bill issuance after a prolonged period of issuing using this liquidity absorption channel. At the same time, the SBV has introduced additional open market operation (OMO) loans with maturities of up to 91 days to provide longer-term liquidity support to the banking system.

According to the SBV's statement, to implement the directives of the Government and the PM on interest rate management, as outlined in Official Dispatch No. 19/CĐ-TTg dated February 24, 2025, the SBV has taken decisive measures, including proactive and flexible OMO management, to reduce interbank market interest rates. This, in turn, supports credit institutions (CIs) in accessing low-cost funding from the SBV, enabling them to continue lowering lending rates in line with the Government's and the PM's policy direction.

Specifically, the SBV has been consistently offering repurchase agreements (repos) of valuable papers on a daily basis, diversifying and extending the maturity periods of these repos, and increasing the transaction volume to promptly and fully meet the liquidity needs of CIs, thereby stabilizing market sentiment. Additionally, the SBV has been conducting repos of valuable papers with maturities of up to 91 days to inject longer-term liquidity into the system, supporting CIs in supplying timely capital for business and production activities in the economy and contributing to a reduction in overall market interest rates.

According to the SBV, liquidity in the CI system is currently well-secured and even in surplus, while confidence in the money market has strengthened. Interbank market interest rates are trending downward, with short-term interbank lending rates on March 5, 2025, declining to around 4.0% per year, closely aligning with the SBV's repo offering rates for valuable papers.

The SBV has been gradually lowering the issuance rate of its treasury bills from 4.0% to 3.1% (as of March 4, 2025) while also reducing issuance volumes and ultimately ceasing treasury bill issuance from March 5, 2025. This move sends a strong signal about the SBV's commitment to maintain low interest environment despite increasing market pressure.