Falling oil prices provide more scope to loosen policy

Exports from Asia have been weak so far in Q2 but domestic demand has held up reasonably well. Nonetheless, we doubt that growth in Asia’s trade-dependent economies would remain so resilient if global demand were to weaken significantly further. Headline inflation rates generally fell in May and the recent sharp falls in oil prices, if sustained as we expect, will put significant downward pressure on inflation ahead. Lower inflation would provide more scope for central banks to support growth. Accordingly, while almost all central banks kept their policy rates on hold this month, we continue to expect rate cuts across much of the region by year-end.