Economy in Brief

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.

The industry climate gauge from the INSEE survey reports a standing in its 27th percentile with manufacturing production expectations at the 29th percentile; both are relatively weak readings. The services sector has a weak reading, too, that stands in its 36th percentile. The standing for services is slightly stronger than for manufacturing and production expectations, but both are basically in the lower one-third of the queue of readings for each sector. In September, industry climate has weakened although manufacturing production expectations improved slightly. The service sector index is slightly improved. In recent times, globally manufacturing has been weak, while the services sector has provided the bulk of the growth. According to the INSEE surveys, there was not much strength in either sector as of September.

Manufacturing The production recent trend observation for September did improve compared to August when it moved up to a -6.2 reading from -13 previously. However, orders and demand weakened to -19.5 in September from -15.9 in August; there was a similar deterioration for foreign orders and demand.

Prices show less pressure with the own-sector likely price trend moving lower to +1.2 in September from +2.3 in August. While the manufacturing price level overall trend just slips to 2.0 in September from 5.6 in August. The percentile standings for all of these readings are in or near in the lower third of their respective historic queue of data across the board. The only exception is foreign orders and demand that has a 56.3 percentile standing. That's the only standing above the 50th percentile, which puts the reading above its historic median on data back to 2001.