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.
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—meet on Thursday and are expected to keep policy on hold. If anything, analysts are watching for any hint of a dovish turn.
“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.
Bangko Sentral ng Pilipinas is expected to keep its benchmark rate unchanged at 4.75 percent when policy-makers meet later on Thursday. Newly appointed Governor Benjamin Diokno’s debut meeting will be watched for any hint he intends to begin reversing 175 basis points of hikes in 2018.
Bank Indonesia is also tipped to leave the key rate unchanged at 6 percent on Thursday as investment banks including Goldman Sachs Group and Morgan Stanley point to cuts beginning as early as the second quarter of the year. Taiwan’s central bank also meets and is expected to maintain the benchmark rate at 1.375 percent.
While China’s economy is forecast to stabilize around midyear, the rest of the region continues to feel its downdraft. South Korea’s exports—a bellwether for global trade—fell 4.9 percent from a year earlier during the first 20 days of the month, data on Thursday showed.