US Fed’s abrupt policy shift invites Asian central banks to cut rates

22 March, 2019 12:00 AM printer

NEW YORK: The Federal Reserve’s abrupt policy shift has opened the door for interest rate cuts across Asia as inflation remains subdued and economic growth slows.

That’s a stark contrast from as recently as four months ago when the prospect of further Fed hikes was pummeling the region’s currencies and pressuring current account deficits, report agencies.

Now, the focus across the region is shifting to domestic concerns as the primary driver of monetary policy. Central banks in Indonesia and the Philippines -- among the most aggressive rate hikers last year -- kept policy on hold on Thursday, as expected, citing subdued inflation pressures.

"The Fed’s big shift will end the tightening wave for Asia’s central banks and open the door for future easing," said Hak Bin Chua, an economist at Maybank Kim Eng Research Pte in Singapore.

A currency rally is also helping. China’s yuan has led gains among emerging-Asian currencies this year, strengthening almost 3 percent against the dollar and followed by the baht. That’s a turn from 2018, where only the Thai currency rose.

Bank Indonesia kept its key rate unchanged at 6 percent on Thursday, with Governor Perry Warjiyo turning to macro-prudential measures to spur domestic demand and growth. Investment banks including Goldman Sachs Group and Morgan Stanley predict rate cuts beginning as early as the second quarter of the year.

Bangko Sentral ng Pilipinas also kept its benchmark rate unchanged at 4.75 percent, with newly appointed Governor Benjamin Diokno saying prevailing monetary policy settings are appropriate. He has previously signaled a willingness to ease policy after 175 basis points of hikes in 2018.

Taiwan’s central bank followed peers in Southeast Asia by keeping its benchmark rate at 1.375 percent, citing mild economic growth and a stable inflation outlook.