In a report titled Asia: Are financial imbalances still a constraint for monetary easing?, AB (formerly known as AllianceBernstein) said disinflation driven by a sharp decline in oil prices has resulted in a divergence of monetary policies across Asia.
“India and Indonesia have been the front runners in the rate cut camp, followed by Singapore,” the report from AB said.
“The central banks of these countries have cited the increasing global economic uncertainty and the policy leeway created by low inflation as the bases of their policy actions.
“Meanwhile, central banks in Korea, Thailand, Malaysia and the Philippines remain reluctant to cut rates owing to concerns about causing financial instability,” the report said.
AB pointed out the leverage cycle in most of the region has “moderated noticeably” over the past few quarters and highlighted instability concerns “may be overdone”.
“In the countries where the balance of risk is unclear, we believe that policymakers should focus primarily on household leverage, as large corporations have become less dependent on debt financing in recent years,” the report said.
AB also highlighted that most of the region is facing a credit downcycle and sluggish credit demand and as a result this should be the primary consideration for all policymakers except those in Singapore and Malaysia.
“Singapore does not have an interest rate-based monetary policy, and its property prices have begun to consolidate anyway, but Bank Negara Malaysia should continue to refrain from easing because of the risk of a housing cycle overheating.
“For other central banks that have yet to start on a monetary easing cycle, the prescription is less clear cut,” the report said.
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