Global Easing Cycle Close to an End

In the following Maggie Wong, Senior Portfolio Manager of Affin Hwang Asset Management shares her views on where we are in the current interest rate cycle and outlook for Asian credits.

1) On monetary policy outlook, where are we in the interest rate cycle looking ahead?

In the past six months, we saw coordinated efforts by central banks globally to reduce interest rates in response to slowing economic growth. Total interest rate cuts delivered amounted to more than 1000bps by 26 central banks, including US Federal Reserve (Fed), European Central Bank (ECB), Reserve Bank of Australia (RBA) and Bank Indonesia (BI).

Going forward, we believe there is limited room for further monetary policy easing given already low interest rates. Central banks are more inclined to “save some bullets” for future, i.e. in the event whereby a recession materialises, as well as adopting a “wait-and-see” approach to assess impact post recent rate cuts.

In the US, the Fed will likely put rates on hold after a final cut in October (if not December), delivering a total cut of 75bps this easing round. The RBA and Bank of Korea (BoK) have also recently signalled that they have likely approached the end of the current easing cycle.

At the same time, we are also seeing a transition whereby central banks are now passing the baton to governments to prop-up growth (i.e. from monetary easing to fiscal easing). For example, there is increasing pressure on various European governments to launch fiscal stimulus. Other countries which have implemented fiscal stimulus recently include but not limited to France, Netherlands and India.

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