Goldman Sachs predicts early policy easing by banks in India and Australia following the Federal Reserve's lead

In a surprising turn of events, central banks across the Asia-Pacific region, from India to Australia, are poised to initiate interest rate cuts earlier than initially projected, influenced by the Federal Reserve’s hastened easing cycle, as suggested by Goldman Sachs Group Inc.

Goldman economists indicated in a recent research note that the decline in long-term US rates, the recent softening of the dollar, and the Federal Reserve’s anticipated fund rate cuts in early 2024 are pivotal factors allowing Asia-Pacific central banks to consider easing measures sooner than anticipated.

The revised timeline from Goldman Sachs accelerates the expected rate cuts for Indonesia and Taiwan to the second quarter of 2024. Additionally, rate reductions for India, Australia, and New Zealand are now forecasted for the third quarter, a notable shift from the previous projection of loosening policies at the end of 2024.

However, it’s important to note that Goldman Sachs anticipates the rate reductions in the Asia-Pacific region to be both fewer and less profound than what Fed officials have projected in their easing cycle.

The Federal Reserve’s shift in policy comes after successfully managing to curb inflation without triggering a recession or causing significant job losses, marking a notable reversal in its steepest rate hikes in a generation. Fed Chair Jerome Powell and colleagues released a forecast last week indicating a series of upcoming rate reductions.

Barclays Plc has also adjusted its trajectory, bringing forward the expected rate cuts for certain emerging Asian central banks, including Indonesia and the Philippines. Barclays economists explained in a note that the expectation for central banks in the region to remain on hold for most of 2024 has shifted due to the Fed’s recent more accommodative stance.

Barclays further highlighted the potential alignment of a few central banks in EM Asia, notably the BSP and BI, with the Federal Reserve’s approach, potentially prompting an earlier start to their easing cycles.

Despite these adjustments, Barclays maintains its expectation for the Bank of Thailand and Bank Negara Malaysia to keep their policies unchanged through 2024, citing their relatively measured approaches in their respective hiking cycles.