More rate cuts anticipated across the region this month

MANILA, Philippines — Central banks worldwide will be keeping a close watch on the Fed’s next move in its meeting this week, with several in the Asia Pacific region prepared to follow through with rate cuts, said foreign market intelligence firms. 

In its Week Ahead Economic Review issued over the weekend, market intelligence firm IHS Markit said among the regional economies that will be tracking policy decision by the Fed include Japan, Indonesia, and Taiwan. 

Last Friday, meanwhile, Bangko Sentral ng Pilipinas Governor Benjamin Diokno said the next cut in policy rates and reserve requirement may be done as early as this month because of easing inflation. 

Diokno also said last month the decision to further cut rates will be “data dependent” and the BSP will “look at the behavior of other central banks.” 

“This coming week will be dominated by central bank meetings around the world, with the FOMC (Federal Open Market Committee) being at the front and center,” said IHS Markit. “Monetary policymaking at the world’s central banks is being led by concerns about the health of the global economy and especially the extent to which growth is being hurt by trade wars.” 

A 25 basis point rate cut by the Fed is “strongly anticipated and almost fully priced in by markets,” said the firm. 

IHS Markit said Japan would closely watch the Fed’s policy action to determine if new stimulus measures – such as deeper negative rates – will be announced or at least considered in the face of a global growth slowdown. 

It noted that Indonesia will likely monitor the Fed’s next moves and the stability of the rupiah before considering if further easing measures are necessary. 

In Taiwan, subdued inflation and growing risks to economic activity will add pressure on the central bank to consider lowering its policy rate, said IHS Markit. 

London-based Capital Economics expects rates to be cut in Indonesia, but held in Taiwan. 

“We expect a cut in Indonesia, but a hold in Taiwan,” it said in a brief over the weekend. 

In a surprise move last week, Vietnam slashed its benchmark refinancing rate from 6.25 percent to six percent. 

The consensus was that rates would be left unchanged not just until the end of this year, but also throughout 2020 as growth was holding up well and is expected to continue performing strongly in the next few quarters.