Riding growth wave, most Asian central banks to go slower than Fed on rate cuts

By Devayani Sathyan

BENGALURU (Reuters) -Most Asian central banks will cut interest rates slower than the U.S. Federal Reserve over the coming year, Reuters polls showed, as solid growth has eased pressure to maintain currency stability against a persistently strong dollar.

A jumbo 50 basis points Fed rate cut in September and expectations for two more quarter-percentage point reductions by end-year has provided wriggle room for central banks in Asian economies to consider their next moves.

The Fed is expected to cut rates by another 125 basis points next year, much more than Asian central banks. But with the U.S. economy showing continued resilience, the greater risk is for the Fed to move more gradually than speed up.

With inflation broadly within Asian central bank targets and growth still resilient, there is no urgency for most to be slashing rates much further.

"Despite easing inflation at home, weak currencies had deterred policymakers from prematurely lowering rates, to prevent further compression in rate differentials," said Radhika Rao, senior economist at DBS in Singapore.

"Each of them is really moving on their own beat and they are not going to match the Fed's moves one-on-one."

Apart from the Indian rupee, which the Reserve Bank of India is actively managing to keep stable, as well as the Chinese yuan, most Asian currency losses this year range from 2-6% against the U.S. dollar.??

Excluding the People's Bank of China (PBOC), seven of eight important Asian central banks which hiked rates only modestly after the pandemic compared to developed economy peers, will hold rates for the rest of 2024 or cut by 25 basis points at most, according Reuters polls taken Oct. 1-29.

Only Bank Indonesia was forecast to cut by another 50 basis points this year.

So far only the Bank of Korea, Bank of Thailand and Bank Indonesia have cut rates by 25 basis points while the Philippine central bank reduced them by 50 basis points. The State Bank of Vietnam reduced rates in June 2023 and has been on hold since.?

Next year, only the Philippine central bank was forecast to cut rates by 100 basis points while the rest were expected to hold or at most cut 50 basis points in total.

The PBOC is an outlier. It announced its most aggressive monetary easing measures since the pandemic in recent weeks to revive the economy, which grew 4.5% last quarter on a year earlier, lower than the 5% growth target. But it also changed its key benchmark interest rate.

For the bulk of world economies where rates are falling, the risk remains they go lower than economists currently expect, the survey found, underpinning a solid global outlook.

Much will depend on whether the Fed decides to move slower than currently expected.

"We believe the main risk to our interest rate outlook for Asian central banks is the path of the Federal Reserve...If the Fed chooses to be cautious with rate cuts, it will mean a stronger dollar," said Alicia Herrero Garcia, chief economist for Asia-Pacific at Natixis.?

(Other stories from the October Reuters global economic poll)

(Polling by the Reuters Polls team in Bengaluru and bureaus in Beijing, Seoul, Bangkok, Manila, Jakarta, Taipei and Kuala Lumpur; Editing by Ross Finley, Hari Kishan and Ros Russell)