Fed Rate Cut Opens Door for Asian Central Banks to Ease Policy

 Lower U.S. yields are giving policymakers in Seoul, Mumbai and Sydney more room to loosen monetary stances without destabilizing currencies.


A “Risk Management” Move From Washington

On September 17, the U.S. Federal Reserve cut its benchmark rate by 25 basis points to 4–4.25%. Chair Jerome Powell called it a “risk management” step rather than a rescue of a weakening economy. He also signaled two more cuts could come later this year.

Why It Matters for Asia

Lower U.S. rates narrow the yield gap between America and Asia, easing pressure on regional currencies and capital flows. That creates fresh room for Asian central banks to stimulate growth.

“Policy settings across the region are likely to become more accommodative,”
— Peiqian Liu, Fidelity International

Already Moving Toward Easing

  • South Korea cut rates in May to the lowest in nearly three years

  • India reduced its benchmark by 50 basis points in June

  • Australia dropped rates to a two-year low last month

Oxford Economics’ Betty Wang expects further cuts in Korea and India in Q4:

“Initial fears of sharp currency depreciation haven’t materialized. Instead, a weaker dollar is creating more space for Asian countries to boost growth.”

Exceptions: Japan and China

  • Japan kept its rate at 0.5% in its September 19 meeting and is signaling a potential hike as inflation stays above 2%.

  • China held its key short-term rate at 1.4% on September 18, wary of inflating asset bubbles even as the economy slows.
    Analysts still see medium-term monetary loosening in Beijing to counter deflation risks.

A Longer Runway for Asia

With stable growth and low inflation in much of Asia, the Fed’s dovish pivot provides an unusually wide runway for regional easing. While Powell may only manage a “short cutting cycle,” as BNP Paribas strategist Chi Lo puts it, Asian policymakers could enjoy a longer-lasting easing trend — a potential tailwind for the region’s growth heading into 2025.


Thika

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