3 Asia-Pacific central banks, including New Zealand, Thailand and India, dropped a shocking bomb in the global market by cutting their interest rates aggressively on the same day.
By the means of responding to a worsening global economy, the central banks of New Zealand, Thailand, and India happened to lower their interest rates all on the same day on August 7th, as the easing policy. Out of investors’ expectation of a 25 basis point cut, New Zealand’s central bank announced a 50 basis point cut on its cash rate, which was a record low of 1%. Followed by The Bank of Thailand, also crushed the market’s expectation — it cut 25 basis points on its one-day repurchase rate, ending up with 1.5%. It was Thailand’s first cutting of its benchmark rate for the first time in 4 years. Meanwhile, the Reserve Bank of India has made its 4th rate cut this year by lowering the official repo rate to 5.4%, which 35 basis points have been cut down. It contradicted to the international convention of 25 basis points increment.
With an intense trade war happening between the U.S. and China, the global economy has gone into slow growth. The fallout of the trade war has created numerous ripple effects. One of them is the strong hit of Southeast Asia’s market while it is a region highly connected with the global supply chain.
The U.S. Federal Reserve lowered its benchmark interest rate by 25 basis points. Surprisingly, it was the Fed’s first rate cut since 2008, nearly 10 and a half years ago. The three central banks of the Asia-Pacific region became the precursors to the Federal Reserve’s action.
The central banks’ easing policy implies their concern toward economic growth. Under this circumstance, central banks often seek out the solution of lowering interest rates to boost the economy and provide drives for economic growth. By using easing policies, they are also yearning for shying away from a downturn.
To bolster growth, countries in Asia had been pondering on monetary easing for a while. The fear of weakening their currencies had been the major concern of doing so. I can foresee the Federal Reserve’s move on cutting rate, however, released that fear and opened up a door for Asian countries to take action, tackling the economic uncertainty.
The Bangko Sentral ng Pilipinas (BSP), the central bank of the Philippines, decided to cut the key interest rates by 25 basis points to 4.25 percent after 3 Asia-Pacific central banks’ cutting rates. So far, there are more than 30 central banks around the world have cut interest rates this year, as countries move to shore up their economies amid rising concerns over global economic growth, trade wars and the potential threat of a messy Brexit.
Among these Asia-Pac countries which cut rates, their fund flows trends are diversified. According to Lipper’s fund flow calculation, New Zealand attracted a consecutive 7 months net inflow since this January. South Korea and India enjoyed the highest net fund inflow of $14,465 and $12,421 million, separately, for the year-to-datee period (as of the end of July 2019) while Thailand suffered the highest net outflow of $2,891 million during the period. Although India gained positive net flows in recent 3 months as of end of this Jul, India’s quarterly GDP growth slowed to a five-year low of 5.8% in January-March as a result of sluggish domestic and global demand. We need to pay high attention if there will be further net outflow for H2. Philippine not only hammered by $1,032 million net outflow during the period but also posted constant net outflow for the year-to-date. Investors need to watch out for its further economic development.
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