Asian central banks to ease further, but effects may be muted: Reuters poll

By Reuters

Apr 24, 2015 05:48 AM EDT

Emerging Asian central banks are expected to cut interest rates again in the coming months, but economists polled by Reuters are doubtful the moves will significantly boost growth or inflation.

The findings echo results from earlier this week in Reuters surveys of more than 250 economists in Europe and North America who also expect more easing.

But the polls there showed only modest upgrades to growth estimates and a still depressed outlook on inflation.

Twenty-seven central banks around the world have eased monetary policy in some manner or other so far this year.

The Reuters surveys across Asia, which bring the total number of forecasters polled above 300 globally this week, found nearly all central banks in the region, with a few exceptions such as New Zealand and South Korea, were set to ease policy again.

The People's Bank of China will probably loosen policy most in the region and is expected to cut both of its two key interest rates by end-June and lower banks' reserve requirement ratio again soon afterward. 

The PBOC cut its benchmark lending rate by 25 basis points last month, followed by an aggressive one-percentage-point cut in banks' reserve requirement ratio over the weekend.

The Reserve Bank of India, which has already cut rates twice outside regular meetings since January, will probably do so once more ahead of its June meeting and lower its benchmark repo rate again before the end of this year. 

"There is growing realization that demand-supportive and anti-deflationary measures need to be undertaken expeditiously, preferably in the first (half) of the year," wrote Michael Spencer, Asia Pacific research head at Deutsche Bank.

But whether those steps will work remain in doubt.

Median estimates for growth and inflation across all emerging Asian economies, and even Japan, have been downgraded from a survey three months ago.

That suggests further stimulus will probably not work as well as policymakers and investors hope.

"In China, we maintain our view that there are rising risks of a mini-hard landing in 2015, as policy easing has not happened as quickly and aggressively as we had expected," Spencer added in the note.

China's gross domestic product is expected to expand at a steady 7 percent in the next four quarters, unchanged from where it is currently and implying growth will stay stuck at a six-year low for a long time.

A mix of poor factory activity, rapidly cooling inflation, a weak property market and uneven export demand has buffeted China's economy.

Beijing has been pumping trillions of yuan into the banking system to re-engineer its economy, shifting to one led by consumption rather than exports and investment. But weak loan demand has dented those efforts.

Tokyo has had an even tougher battle. The Bank of Japan has been conducting some form of quantitative easing since the late 1990s with a short interruption, but on the whole that has done little to boost growth or lift inflation. 

Economists surveyed expect Australia and South Korea to report slightly slower growth this year and next compared with the January poll.

India's economy is predicted to grow 7.4 percent this fiscal year and 7.8 percent next, but even that is based on expectations for two more rate cuts from the RBI this year.

The International Monetary Fund expects India's growth rates to be the fastest for any economy in the world.

Inflation is forecast to cool this year throughout Asia, notably in Australia and New Zealand as economists expect inflation rates of less than 2 percent.

Disinflation fears have crept in globally since the turn of the year after a slump of more than 50 percent in oil prices started cutting inflation in economies that import oil.

Although inflation is expected to be weak even in the United States, economists see the Federal Reserve raising interest rates this year. But those rate hikes are expected to be more gradual compared with forecasts in previous polls.

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