A Thai investor looks at an electronic board showing stock prices.
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USA FedSeptember’s decision to cut interest rates, with further cuts expected, could be a boon for Southeast Asia’s emerging economies.
Saurabh Agarwal, head of Southeast Asia private equity at Warburg Pincus, told CNBC: “We are very confident and optimistic about the rate cut…these markets will return to a 6-7% real GDP growth trajectory in the short term.” Squawk Box Asia “last month.
Economists and financial officials in the region also have confidence in him.
David Sumual, chief economist at Bank of Central Asia, said Indonesia is one such country that can take advantage of the Federal Reserve’s short- and long-term policies.
“Given the potential rise in commodity prices, especially given the upcoming news, further rate cuts by the Fed will benefit Indonesia mainly through the commodities channel. China’s fiscal stimulus. Indonesia may also benefit from higher portfolio inflows (especially equities), although the impact may be more limited given the new demand from Chinese equities,” he told CNBC.
Rising U.S. interest rates are traditionally bad for emerging markets because U.S. investors typically repatriate dollars in search of decent yields. A major concern is also the pressure on currencies from interest rate differentials, which could be a difficult time for emerging market central banks trying to control rising prices.
But on the other hand, when U.S. interest rates ease, it can boost emerging markets and their economies will regain capital inflows. Global commodity prices, the bedrock of many emerging markets, also tend to rise as markets grow. Dollar It fell on a more dovish outlook from the Fed.
Indonesian surprise
In the current environment, both Indonesia’s and Thailand’s central banks are trying to take action after the Federal Reserve’s recent interest rate cuts.
In fact, just hours before the Fed cut interest rates, Bank Indonesia (the country’s central bank) announced The first interest rate cut in three years was seen as a surprise move.
In a speech before the Fed cut interest rates, Henry Wibowo, head of Indonesia research and strategy at JPMorgan, told CNBC’s “Squawk Box Asia”“Indonesia in Asia will be one of the main beneficiaries of this portfolio flow due to any cuts in the United States.”
“If you look at the Jakarta Composite Index, one of the biggest sector drivers is the banking sector, and we think banks will receive portfolio inflows, which should basically help improve their price-to-earnings ratios,” he said. Financial professionals use trading multiples to measure a stock’s value.
Sumual added that Indonesia’s interest rates have historically followed the Federal Reserve’s rates as global cash flows and currency fluctuations are closely linked.
“Bank Indonesia is inclined to follow the Fed in lowering the policy rate, although Bank Indonesia (BI) has the ability to lower the BI rate at the September 24 meeting ahead of the US Federal Open Market Committee meeting because the value of the rupiah is eager to appreciate,” he told CNBC.
Sumual added that Bank Indonesia “will likely wait for further rate cuts from the Federal Reserve before resuming rate cuts as the central bank continues to seek a balance between pro-stability monetary policy and pro-growth macro-prudential policies.”
Both Indonesian rupiah and Thai Baht Currency strengthens against USD Dollar After the Fed made its decision, in part because Investors are moving large amounts of money from U.S. government bonds to developing markets in Southeast Asia.
And it’s not just two countries. Both Malaysian Ringgit The Singapore dollar also strengthened as the Federal Reserve cut interest rates. On September 29, the Thai baht hit its highest level against the US dollar since early 2022.
Thailand’s dilemma
However, a strong currency has put Thailand in a dilemma.
According to the Federal Reserve’s decision, the country Commerce Minister Pichai Naripthaphan urges Bank of Thailand to consider rate cut — Already at 2.5%, one of the lowest compared with neighboring countries. He noted the need to stimulate investment and reduce the household debt burden of the general Thai population, which is currently Accounts for 90% of Thailand’s GDP.
“Every time the U.S. raises or lowers interest rates, it will affect capital inflows and outflows in the Thai market. When U.S. policy interest rates fall, it will also cause the Thai baht to appreciate, and vice versa.” Naripthaphan said in an interview with local media.
The Bank of Thailand is obliged to surprise cuts announced October 16, for the first time in four years.
in a Report published In September, the U.S. credit rating agency Fitch Ratings stated that the Federal Reserve is expected to cut interest rates four times by 2025, and the Federal Reserve is still expected to cut interest rates again before the end of the year.
As for ASEAN, the central bank looks likely to be in lockstep with the Fed. Sumual believes both Bank Indonesia and Bank of Thailand will “follow suit”, further benefiting ASEAN’s emerging market portfolio assets.
