Rising energy prices, driven by conflict in the Middle East, are increasing inflationary pressures across Asia. This has prompted Goldman Sachs to revise its monetary policy forecasts for several regional economies. The firm has withdrawn its previous expectation for monetary easing in Indonesia this year. It has also added new forecasts for potential interest rate hikes in India and the Philippines.

According to a Tuesday report from Goldman Sachs economists, central banks in economies with less-anchored inflation expectations, higher exchange rate sensitivity, and stronger fuel price pass-through effects are more likely to tighten policy. This reassessment has also led Goldman to bring forward its timeline for further policy tightening in Singapore and to add another rate hike to its forecast for Australia.

"A significant supply shock presents a challenge for monetary policy," Goldman Sachs stated. "Our new baseline forecast faces two-way risks but remains skewed toward the potential for a larger, more persistent upside shock to energy prices."

The report was published as conflict in the Middle East entered its fourth week, creating turmoil in energy markets. Goldman's oil price projections assume a near-closure of the Strait of Hormuz persisting until mid-April. This scenario would push the average price of Brent crude to $105 per barrel in March, up to $115 in April, before declining to $80 by the fourth quarter.

As a result, the economists project inflation in Thailand and the Philippines could rise by more than one percentage point. Conversely, due to existing energy subsidies, they expect the impact of the shock on China, Japan, and South Korea to be "close to zero." Across the region as a whole, they anticipate consumer prices will increase by an average of 0.6 percentage points, bringing the total cumulative upward revision since the conflict began to slightly over one percentage point.

Goldman Sachs indicated that the impact on economic growth is not uniform. The bank's growth forecasts for China, Japan, and South Korea were barely adjusted downward. In contrast, growth projections for India, the Philippines, Thailand, and Singapore were lowered by more than 0.5 percentage points.

The economists also noted that the current account balances of most economies in the region, except for Australia and Malaysia, are expected to deteriorate. They anticipate that governments will implement fiscal loosening through subsidies, while central banks will intensify foreign exchange interventions to limit imported inflation.