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 Federal Reserve, according to Goldman Sachs Group Inc.
“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 will be able to ease “earlier than we’d previously envisaged,” Goldman economists said in a research 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 2024.
Still, Goldman expects the rate reductions in the Asia-Pacific to be fewer and shallower than Fed officials’ projected easing cycle.
The US central bank has pivoted toward reversing its steepest rate hikes in a generation after containing a surge in inflation without triggering a recession or significant cost to employment. Fed Chair 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 Asia central banks, 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 in a note, also highlighting the recent US turnaround.
“We think a few central banks in EM Asia may push forward the start of their own easing cycles, notably the BSP and BI, 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 2024, given they have been “relatively measured” in their respective hiking cycles.
