major wave of monetary policy easing by APAC central banks that has been underway since May has escalated this week, with another round of rate cuts by the Reserve Bank of India (RBI), the Bank of Thailand (BOT) and the Reserve Bank of New Zealand (RBNZ).
A growing number of Asia-Pacific central banks, including Bank of Korea (BOK), Bank Indonesia (BI), Bank Negara Malaysia (BNM), RBI, the Reserve Bank of Australia (RBA), RBNZ, BOT and Bangko Sentral ng Pilipinas (BSP) have lowered policy rates since May 2019, reflecting concerns about the escalating US-China trade war and the economic impact on their economies, with many East Asian industrial nations facing weakening exports and industrial production.
Japanese exports fell 6.7% year on year (y/y) in June, Singapore’s exports contracted 17.6% y/y in June, while South Korean exports for the first 20 days of July slumped by 13.6% y/y. The negative shock waves from the escalating US-China trade war on the Asian manufacturing supply chain have been compounded by a slump in global electronics orders. Singapore’s electronics exports were down 31.9% y/y in June while South Korean exports of semiconductors contracted 30% y/y in the first 20 days of July.
The combined impact of the Fed rate cut on 31 July and the escalation of the US-China trade war in early August have triggered a new wave of policy rate cuts by a number of Asia-Pacific central banks in response to the deteriorating near-term outlook for Asian exports. Recent declines in world oil prices also have improved the near-term inflation outlook for many APAC economies, further opening the door for more monetary policy easing by APAC central banks.
Risk aversion towards Asian emerging markets’ asset classes and currencies is increasing due to the escalating US-China trade war and continued weakening in exports in many APAC economies, triggering a flight to safe haven assets, notably US Treasuries (PR)