Despite the current subdued rates of inflation across most of Emerging Asia, we don’t expect many of the region’s central banks to copy Bank Indonesia, which yesterday surprised markets by cutting interest rates. The main reason why other central banks are unlikely to follow Indonesia’s lead is the recent improvement in growth prospects. Stronger export demand has pushed up growth across most of the region, reducing the need for further policy stimulus. Policymakers are also concerned that rate cuts could trigger another surge in credit growth, which would pose problems for the region’s banking sectors. Overall, with the exception of Indonesia and Vietnam, which are both likely to cut interest rates once more in 2017, we expect all the region’s other major central banks to keep rates on hold for the remainder of the year.
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