Surprise rate decisions in Asia signal growing economic unease

[HONG KONG] Three central banks over two days surprised markets and economists with unexpected interest rate decisions, each flashing warning signs over growth in the coming months and stirring uncertainty over the path of policy.

Reserve Bank of New Zealand (RBNZ) cut its key rate by 50 basis points on Wednesday (Oct 9), twice as large as most analysts forecast, on economic activity and business sentiment that came in worse than expected.

Thailand stood pat later in the day, even though poor economic growth prospects, a strong currency and a dovish new governor sent most economists expecting a cut. Citigroup economists called it a “dovish pause” as more cuts are expected later this year.

Then the Philippines central bank on Thursday chopped interest rates by 25 basis points, against wide expectations for a hold, as a corruption scandal around government contracts saps confidence.

Taken together, they underscore growing domestic economic and market uncertainties exacerbated by US President Donald Trump’s trade and international policies since returning to office in January. His tariffs on trading partners have upended longstanding ties and roiled export and growth prospects in Asia, the world’s manufacturing hub.

“The key theme for Asia-Pacific central banks is that of downside risks to growth arising in part due to a more hostile trade environment,” said Eugene Leow, a senior rates strategist at DBS Group Holdings in Singapore.

In Indonesia, the central bank also made a surprise rate cut last month to make an “all-out, pro-growth” push, aligning with President Prabowo Subianto’s objectives. Meantime, the Reserve Bank of India left its policy rate unchanged last week in a decision that many economists said was too close to call.

While New Zealand, Thailand and the Philippines face similar risks over economic and trade, as well as benign inflation, they do have their differences.

Thai inflation is running below target and several factors – from high household debt to domestic political crises – have weighed on growth. The economy is also struggling with a baht that’s strengthened more than 6 per cent over the last six months, damping tourism and exports

The Philippines central bank cited a corruption scandal in its decision to cut rates this week. Widespread misuse of billions of US dollars earmarked for flood-control projects has hurt investor confidence and likely to curb government spending on large projects.

In New Zealand, the economy has been slow to recover from a 2024 recession.

New Zealand’s kiwi fell by 1 per cent versus the greenback on Wednesday following the surprise jumbo cut, while the Philippine peso extended losses by as much as 0.6 per cent on Thursday.

“Thailand and Philippines also have to deal with domestic political uncertainties that further weigh on economic sentiment,” Leow said. “The RBNZ may be getting a bit impatient with waiting for the economy to stabilise and hence want to take policy settings clearly below neutral.”

Across the region, growth is likely to be slightly lower than last year, but still fairly resilient. A report on Thursday from the Asean+3 Macroeconomic Research Office – set up after the 2008 global financial crisis to monitor South-east Asia, plus China, Japan and South Korea – forecasts 4.1 per cent growth this year, up from 3.8 per cent seen in July, although slightly down from 4.3 per cent last year.

The head of the International Monetary Fund, which will release its revised global outlook next week, said on Wednesday that the world has showed resilience to an initial wave of trade disruptions, but warned against complacency because financial markets and growth can sour quickly.

Many economies have performed “better than feared, but worse than we need,” said managing director Kristalina Georgieva. BLOOMBERG