Some Asia-Pacific central banks have paused rates. Who could cut first?

One by one, countries in Asia-Pacific are putting a pause on their tightening cycles this year after central banks around the world tried to keep pace with the U.S. Federal Reserve’s aggressive rate hikes in 2022.

While inflation in the region remains well above central bank targets, the problem of balancing economic growth and the depreciating currencies — as a result of the U.S. dollar peak in September — appears to be easing for now.

The dollar index is broadly weaker now on expectations the Fed could soon end its tightening cycle. Inflation is also seen to be less sticky in the region compared to the U.S. and Europe — BofA economists led by Helen Qiao said inflation in Asia’s emerging markets has already “peaked out and started to moderate in the region.”

In fact, economists say some central banks may have already reached the end of their tightening cycles and could begin to shift their focus to what will stimulate growth through rate cuts. Citi and ING are among those expecting to see such moves as soon as the second half of this year.

China and Japan are still outliers in the current global tightening cycle. Here are other central banks in the region that have hit the brakes for now — and what they could end up doing next.

• Policy rate: 3.50%
• Consumer Price Index: +4.2% year-on-year in March
• Inflation target: 2%
• GDP (Q4 2022): +1.3% year-on-year, -0.4% quarter-on-quarter
• Next central bank decision: May 25

The Bank of Korea was the first to hold rates steady after being one of the first nations to hike in the pandemic era — and could even become the first to cut rates in the region.

The Reserve Bank of Australia defied market expectations of another hike in March when the central bank held its cash rate target steady at 3.60% – it marked the first halt since starting its tightening cycle in May 2022. Its cash rate is at the highest since May 2012.

The Reserve Bank of India held its policy repurchase rate at 6.5% at its last central bank policy meeting in April, despite economists’ expectations for the central bank to hike 25 basis points.

1. Indonesia
   Bank Indonesia has held its 7-day reverse repurchase rate steady at 5.75% in the last two meetings, saying the current rate is “sufficient to direct core inflation” to its target range of between 2% and 4% within 2023.
   Citi economist Helmi Arman expects Indonesia to cut rates as soon as September this year.
   “As the inflation outlook is also benign, we see policy rate cuts happening sooner,” Arman said in an April 12 note, adding he moved up his forecast for a cut in the first half of 2024 in light of recent economic data.
   Indonesia’s consumer price index rose 4.97% in March. The central bank raised rates six times since August 2022, and its next monetary policy decision is due on April 18.
2. Singapore
   The Monetary Authority of Singapore kept its monetary policy unchanged on Friday, and warned of dim growth ahead for the year in its statement.
   The central bank said in its latest policy statement that it expects core inflation to average 3.5% to 4.5% for the whole of 2023.
   “While inflation is still elevated, MAS’ five successive monetary policy tightening moves since October 2021 have tempered the momentum of price increases. The effects of MAS’ monetary policy tightening are still working through the economy and should dampen inflation further,” the Monetary Authority of Singapore said.
   The central bank is due to release its next policy statement in October.
3. Malaysia
   Bank Negara Malaysia held its overnight policy rate steady at 2.75% in March, after the economy saw robust growth in 2022 and grew 8.7% last year, “driven by the recovery in private and public sector spending following the full reopening of the economy.” The central bank hiked its rates four times since May 2022, according to Refinitiv.
   Consumer price index rose 3.7% year-on-year in February. Malaysia’s inflation target is between 3% to 4%, according to Refinitiv data. The central bank’s next monetary policy meeting is on May 3.

However, there are still central banks in the region that have continued to raise interest rates, including New Zealand and Thailand.

The Reserve Bank of New Zealand surprised markets earlier this month by hiking 50 basis points to 5.25%, exceeding expectations of a smaller hike. The country is still grappling with the economy’s inflation of 7.2%. The next central bank meeting is slated for May 24.