Central banks from India to Australia are likely to begin reducing interest rates earlier than anticipated in response to a faster-easing cycle from the US Federal Reserve, Goldman Sachs Group Inc said.
“With long-term US rates already coming down significantly, the dollar softening in recent weeks, and the Fed poised to cut the funds rate beginning relatively early in 2024,” many Asia-Pacific central banks would be able to ease “earlier than we’d previously envisaged,” Goldman economists said in a note.
They have now brought forward Indonesia and Taiwan’s first rate cut to the second quarter of next year and India, Australia and New Zealand’s to the third quarter, having previously anticipated a loosening at the end of next year.
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Still, Goldman expects the rate reductions in the Asia-Pacific region to be fewer and shallower than Fed officials’ projected easing cycle.
The US central bank has turned toward reversing its steepest rate hikes in a generation after containing an inflation surge without triggering a recession or significant job loss.
Fed Chairman Jerome Powell and his colleagues last week released forecasts showing a series of rate reductions next year.
Barclays PLC also brought forward its rate-cut trajectory for some emerging central banks in Asia, including Indonesia and the Philippines.
“We had expected central banks in the region to be on hold for most of 2024, given the Fed’s hawkish bias,” Barclays economists said, also highlighting the recent US turnaround.
“We think a few central banks in EM [Emerging Markets] Asia may push forward the start of their own easing cycles, notably the BSP [Bangko Sentral ng Pilipinas] and BI [Bank Indonesia], which tend to align with the Fed more,” Barclays said.
Barclays still expects the Bank of Thailand and Bank Negara Malaysia to keep policy unchanged through next year, given that they have been “relatively measured” in their respective hiking cycles.
Meanwhile, the Bank of Japan (BOJ) is expected to keep the world’s last negative interest rate intact tomorrow, with investors set to scour comments for hints on if and when authorities might scrap the policy next year.
Almost all 52 economists surveyed by Bloomberg forecast no change in major policy settings for the short-term rate and yield curve control mechanism at the policy meeting that concludes today.
With two-thirds forecasting an end to the subzero rate by April, economists’ focus would be whether the bank signals progress toward reaching its inflation goal. Following the Fed’s surprise dovish turn last week, market watchers are likely to be on guard against another surprise by BOJ Governor Kazuo Ueda.
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