Fed Rate Cut Paves the Way for Asian Central Banks to Ease Policy

Singapore: The U.S. Federal Reserve's quarter-point reduction has paved the way for a broadening wave of monetary easing in Asia as regional economies struggle with trade headwinds, currency pressures, and moderating global growth.

The Fed cut its policy rate to 4%–4.25% and indicated two further reductions this year. Chairman Jerome Powell characterized the move as a "risk management cut," rather than an emergency measure, citing the balance between weaker U.S. growth and persistent inflation risks.

The switch diminishes the yield differential between the U.S. and Asian economies, alleviates currency fears and provides Asian authorities with more room to boost domestic growth. Economists predict that this may initiate a more sustained and accommodative cycle in Asia than there is for the Fed to reduce.".

Some of the central banks have already acted. The Bank of Korea lowered rates in May, Australia's central bank lowered rates in August, and India's Reserve Bank made an outsized 50-basis-point cut in June. More easing later in 2025 is anticipated by analysts, particularly from South Korea, India, and other export-led economies.

"Previous concerns of quick currency weakness have not yet come to pass," Oxford Economics' Betty Wang said. "A weaker dollar now leaves Asian central banks with more leeway to ease further."

China and Japan are still exceptions, however. The People's Bank of China left its short-term rate unchanged at 1.4% to avoid stoking asset bubbles, while the Bank of Japan has indicated future increases in order to normalize policy after years of super-easy conditions.

Asia's fundamentals, strong growth and relatively muted inflation, suggest a longer easing cycle, say economists. India too will maintain flexible policy even as it enjoys strong domestic demand as inflation remains within the central bank's target zone.

With the dollar weakening and U.S. growth itself decelerating, analysts say Asia is likely to see its monetary easing cycle carry on well into 2026, insulating the region from global trade tensions.