(Dec 20): Southeast Asia is set for another year of low inflation, generating difficult choices for the region’s central banks.

S&P Global Ratings sees inflation remaining below central bank targets in most cases in 2020, according to Shaun Roache, S&P’s chief APAC economist in Singapore. Policy makers may soon have to think about using tools other than interest rates to achieve their policy goals, he said.

“The story will quickly turn to ‘Plan B,’ which could be some combination of forward guidance, negative rates and quantitative easing, even in an emerging market like Thailand,” he said in an email. “This could be the big story of 2020.”

Central banks in Southeast Asia’s main economies -- Indonesia, Thailand, Singapore, Malaysia, the Philippines and Vietnam -- eased monetary policy in 2019, unwinding some of the previous year’s tightening as growth prospects worsened. Some have scope to ease again in 2020, but policy makers will need to balance that against currency and financial-stability risks.

Cramped Policy

Policy space is closing fastest in Thailand. The central bank, which left its benchmark rate unchanged this week at 1.25%, has struggled to get inflation back into its 1%-4% target amid a surging currency. The Bank of Thailand is expected to narrow the target band, possibly to 1%-3%, according to Standard Chartered Plc.

In Indonesia, policy makers will drop the inflation target to 2%-4% in 2020, from 2.5%-4.5% this year. Bank Indonesia Deputy Governor Destry Damayanti said in a recent interview that the economy has entered “a new norm” of historically low inflation.

Below-trend growth “will prevent the economy from soaking up spare capacity,” keeping price pressures subdued, Roache said.