Washington, August 20 (QNA) – The American Wall Street Journal reported that economic experts are closely monitoring the steps of Asian central banks in South Korea, Indonesia and Thailand, to see if they will take a step similar to what the central bank in the Philippines did in reducing interest rates, before the Federal Reserve (the central bank in the United States) does so.
The newspaper added, in a report, that the central bank in the Philippines surprised many last Thursday by deciding to cut the main interest rate by 25 basis points to 6.25 percent, ending a long streak of keeping the interest rate high that lasted for about four years. The last time the central bank cut the main interest rate was in November 2020.
Economists at ING Group said the decision by the Philippine central bank was a bold move as it came before the Federal Reserve decided to ease its monetary policy.
The decision comes ahead of an expected easing of monetary policy in the United States, making it more aggressive, said Robert Carnell, the group’s regional head of research for Asia-Pacific. The relatively calm response from markets to the decision could make other central banks in the Asia-Pacific region more inclined to follow suit, he added.
The Wall Street Journal noted that the interest rate cut in the Philippines comes one day after the Reserve Bank of New Zealand cut its official interest rate, putting the two countries in line with the People’s Bank of China (China’s central bank), which has already begun a series of cuts to support the slowing economy.
However, the newspaper noted that there are factors that may hinder expectations of the start of monetary easing policy in Asia, including the weak performance of many Asian currencies and uncertainty about the timing of the start of the monetary easing cycle in the United States, which makes policymakers in the region hesitant to take steps before the Federal Reserve, in addition to the risks associated with unfavorable interest rate differentials and currency depreciation.
Economists have long been anticipating the start of monetary easing in Asia, however, economic data has been inconsistent, pointing to patchy progress in the domestic economy and a global slowdown, making the region’s economic outlook murky. At the same time, there have been calls from many banks to boost growth amid signs that higher interest rates are starting to take a toll on the economy.
The newspaper continued that with conditions initially improving and expectations of a rate cut by the Federal Reserve increasing, there may be upcoming steps from Asian banks towards easing their monetary policies, however, experts say caution will remain prevailing.
The Wall Street Journal quoted Sara Tan and Denise Cheok, economists at Moody’s Analytics, as saying that they expect the Bank of Korea to be close to making a decision on monetary policy, but concerns about rising household debt and housing prices may push the Bank of Korea to be cautious and not move aggressively. They pointed out that the Bank of Thailand is another potential candidate to cut interest rates in 2024, which could help support the economy that has been growing at a lower-than-expected rate since the pandemic.
According to Sarah Tan and Dennis Cheok of Moody’s Analytics, Thailand’s relatively high interest rate environment has drained private consumption, with consumer prices remaining largely unchanged, raising the possibility of a rate cut, and the gradual recovery of the Thai rupee could support this trend.
The newspaper added that Lavanya Venkateswaran, an economist at OCBC Banking, expected that the Central Bank of Indonesia may follow the steps of the Philippine Central Bank by cutting interest rates by 50 basis points in the last quarter of the year.
However, Venkateswaran said that although she does not expect the Indonesian central bank to take this step before the US Federal Reserve due to the priority of currency stability, easing steps before or in conjunction with the US cannot be ruled out, especially if the exchange rate remains stable.
The Wall Street Journal stressed that any fluctuation in expectations regarding a reduction in interest rates by the Federal Reserve could have negative effects on monetary policy views in Asia.
