Morgan Stanley Predicts Asian Central Banks To Commence Rate Cuts From Late June

According to global brokerage Morgan Stanley, Asian central banks are anticipated to commence rate cuts from late June onwards.

Real rates in the region are on the rise due to declining inflation, prompting central banks to consider rate reductions. The brokerage suggests that initiating rate cuts by June or July could help mitigate downside risks to growth, supported by improving exports and capital expenditure. However, delays in rate cuts until next year could pose risks to economic growth.

As inflation continues to decline, real rates across Asia are increasing. The hesitation in rate cuts is attributed to the strength of the US dollar and the Fed's rate path repricing.

Morgan Stanley warns of potential risks if rate cuts are postponed to the first quarter of 2025 or later, particularly if delays in Fed rate cuts occur and oil prices surge due to supply concerns.

With Asia reverting to a low-inflation environment similar to pre-pandemic levels, real rates have surged to five-year highs in the region. Despite the Fed rate cuts being priced out and the dollar strengthening, Asian currencies remain weak. Central banks may exercise caution, considering the potential for further currency depreciation to impact inflation dynamics.

The brokerage emphasises that Asian central banks are likely to await signals from the Fed before initiating their own rate cuts, highlighting the importance of the Fed's actions in shaping regional monetary policies.