In this week's newsletter, we explore the recent series of central bank decisions in Asia, framed by the Fed’s 50 bps rate cut last week. The Fed's move to begin its easing cycle has opened the door for regional central banks to follow suit, particularly in light of yield differentials (Chart 1). However, unique economic conditions may lead individual central banks to pursue independent paths. For instance, we examine the Bank of Japan’s decision to maintain its policy stance last week, discussing the implications of financial market volatility and the potential for future tightening moves this year (Chart 2). In Taiwan, the central bank kept its policy rate high due to persistent inflation, while also raising reserve requirements to address property market –related concerns (Chart 3). Conversely, some central banks, such as Indonesia’s, have preemptively cut rates, benefiting from more favorable yield differentials for the rupiah (Chart 4). Looking ahead, we will also cover the Reserve Bank of Australia’s upcoming decision, where observers largely expect no changes to the policy rate, also due to inflation concerns, despite significant financial strains on households (Chart 5). Finally, we will touch on the monetary policies of other central banks in Asia, specifically those of Thailand and Malaysia (Chart 6).
The Fed’s easing cycle The US Fed officially began its easing cycle last week with a 50 basis point rate cut, meeting the expectations of some economists while surprising others who anticipated a more conservative 25 basis point cut. This decision reinforces the broader trend of easing among G10 central banks and creates opportunities for central banks in the Asia-Pacific region to consider similar actions, depending on their domestic conditions. The Fed's move also alleviates concerns about the potential impact of yield differentials stemming from their easing policies. Notably, some central banks in the region had already initiated interest rate cuts ahead of the Fed, a topic we will explore in more detail below.