Nomura: Asian central banks may decouple from Fed sooner

Economists at Nomura have predicted that central banks in Asia could start cutting rates earlier than the Fed. The economists, led by Sonal Varma, wrote in a Friday note that different macroeconomic conditions in Asia could prompt the Fed to either take a dovish turn from major economies in the region or a “departure” from a global tightening cycle led by the Fed. “Our view that Asian central banks will cut policy rates ahead of the Fed this cycle is based on fundamental differences between the Asian and U.S. economies,” Nomura economists wrote. The minutes of the Fed’s June meeting suggested more rate hikes ahead, albeit at a slower pace. China, by contrast, has been pushing for policy rate cuts as its economic recovery from COVID lockdowns continues to falter and investors await more stimulus measures to follow. More than 32% of respondents said they expected South Korea’s central bank to cut rates first after China, followed by Indonesia, the Philippines and then India. "After China, Korea, India and even Indonesia could be ahead of the Fed in cutting rates due to faster disinflation, weaker demand and higher real interest rates," the economists wrote.