Fed cut sets stage for Asia's next easing wave amid trade strains

Core Viewpoint - Asian central banks may have more flexibility to ease monetary policy following the Federal Reserve's recent interest rate cut, as the region faces trade challenges and currency pressures [2][3]. Group 1: Federal Reserve Actions - The Federal Reserve cut its benchmark overnight lending rate to 4%-4.25% and indicated that two more cuts are likely this year, framing the decision as a "risk management cut" [2]. - The Fed's actions may narrow the yield gap between U.S. and Asian bonds, potentially alleviating currency concerns and allowing Asian economies to lower rates [3]. Group 2: Asian Central Banks' Responses - Some Asian central banks, such as the Bank of Korea and the Reserve Bank of Australia, have already cut rates in anticipation of the Fed's moves, with the Bank of Korea reaching an almost three-year low [4]. - Export-dependent economies like Japan, South Korea, and Singapore showed better-than-expected growth in Q2, with some central banks likely to continue rate cuts in Q4 [5]. Group 3: Economic Conditions and Inflation - Concerns about rapid currency depreciation have been overstated, allowing Asian central banks to ease further in response to growth concerns [6]. - India, despite strong domestic growth, is likely to prioritize domestic demand and may continue policy easing due to external pressures and rising inflation [7][8].