Coverage: Q2 2026 · Information to 13 July 2026
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TGB Quarterly Regional Banking Monitor · 13 July 2026
The Middle East energy shock split Asia-Pacific policy in the second quarter of 2026: Australia, Japan and Indonesia raised rates while India and Korea held and China's loan prime rates were unchanged.
The desk view
The second quarter of 2026 turned the Middle East energy shock into a test of Asia-Pacific policy frameworks. Central banks with inflation or currency pressure tightened: the Reserve Bank of Australia raised its cash rate to 4.35% on 5 May, the Bank of Japan took its policy rate to around 1.0% on 16 June, and Bank Indonesia lifted the BI-Rate by 100bp to 5.75% in three steps. The Reserve Bank of India, the Bank of Korea and the loan prime rate in China stayed put. Banking systems met the shock with high capital: Indian banks reported a CRAR of 17.7% in March 2026, Hong Kong's local banks 24.9% and Indonesian banks 23.97% in April. The pressure points are thin margins at ICBC and narrowing margins at DBS, rising delinquency in Korea and the cost of defending the rupiah.
The regional picture
The conflict in the Middle East set the terms for Asia-Pacific monetary policy in the second quarter. The Monetary Authority of Singapore said shipping through the Strait of Hormuz had been severely constrained since late February, that energy prices had risen sharply and that Asia had seen physical shortages and higher import prices. The Reserve Bank of Australia said in May that sharply higher fuel and related commodity prices were already adding to inflation. Central banks divided according to how far the shock threatened inflation and exchange rates.
Three central banks raised rates during the quarter. The Reserve Bank of Australia increased its cash rate target by 25bp to 4.35% on 5 May 2026. The Bank of Japan raised its guideline for the overnight call rate to around 1.0% on 16 June, a 25bp move from the 0.75% it had kept on 28 April. Bank Indonesia moved fastest, raising the BI-Rate by 50bp to 5.25% on 19–20 May, by 25bp to 5.50% on 9 June and by 25bp to 5.75% on 17–18 June, a cumulative 100bp. The Monetary Authority of Singapore had already moved on 14 April 2026, slightly increasing the rate of appreciation of its exchange-rate policy band.
Others held. The Reserve Bank of India's Monetary Policy Committee voted unanimously on 5 June 2026 to keep the repo rate at 5.25%. The Bank of Korea left its Base Rate at 2.50% on 28 May 2026, with two members voting to raise it to 2.75%. In China the one-year loan prime rate was 3.0% and the over-five-year rate 3.5% both on 20 March and on 22 June 2026. Neither the Indian nor the Korean hold was framed as dovish: the Bank of Korea's Governor said it was judged necessary to raise the Base Rate at an appropriate time, and the Reserve Bank of India's Committee said the risks of higher inflation had amplified.