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The emerging market Asian central banks are expected to maintain a pro-growth stance amid hovering external uncertainty, according to the latest research report from Scotiabank.
Fed Chairman Jerome Powell said on Tuesday that the US central bank will respond "as appropriate" to the risks posed by a global trade war and other recent developments. In our view, his comments opened the door to US rate cuts. The Fed Funds Futures are now pricing in a 66 bp rate cut this year and another 28 bp reduction in the fed funds rate in 2020.
In addition, The WSJ reported on Friday morning that the Fed begins debate on whether to cut rate as soon as June. The article said "Fed officials, who gathered at the Federal Reserve Bank of Chicago this week for a research conference, signalled in broadcast interviews and speeches that they are attentive to the risks of a sharper-than-expected slowdown in growth, a sign that an interest-rate cut could be on the table at coming meetings."
Fed officials must balance the risks of easing too soon with the costs of waiting too long, according to the WSJ article.
The Fed’s softer stance provides room for some EM Asian central banks to deliver more monetary easing measures, together with absence of inflationary pressure amid relatively benign oil prices. In the meantime, some other regional central banks including the BNM, the CBC and the BoT will remain in a wait-and-see mode, the report added.
The rest will stay on hold for now with the aim of protecting domestic financial stability or defending local currencies, such as the BoK and the BI respectively.
"We expect rising odds of Fed rate cuts and EM Asian central bank’s pro-growth stance to further prop up regional currencies in the near term. Meanwhile, we also stay vigilant and nimble. If bad news is no longer good news and turns into terrible news and/or if the US-China trade tensions intensify once again, it will spur risk aversion and send the dollar stronger on escalating flight-to-quality demand," Scotiabank further noted in its report.
