Economists at Nomura predicted that central banks in Asia could begin to cut rates sooner than the Fed.
Economists led by Sonal Varma wrote on Friday that a dovish return from major economies in the region, or a “breakout” from a Fed-led global tightening cycle, could be ahead of the Fed due to divergent macroeconomic conditions in Asia.
“Our view of Asian central banks to cut policy rates ahead of the Fed this cycle is based on fundamental differences between Asian and US economies,” Nomura economists wrote.
The minutes of the Fed’s June meeting showed further rate hikes ahead, albeit at a slower pace. On the contrary, China has turned to policy rate cuts as its economic recovery from the Covid lockdowns continues to bounce and investors await further stimulus measures to follow.
According to a real-time survey conducted by Nomura’s research team, more than 32 percent of respondents said they expected South Korea’s central bank to cut interest rates first after China, followed by Indonesia, the Philippines, and then India.
“After China, Korea, India and even Indonesia may cut rates ahead of the Fed due to faster disinflation, weaker demand and higher real interest rates,” the economists wrote.