On 17/9, the Fed announced a 25 basis point (0.25%) cut to its benchmark interest rate, lowering it to 4-4.25%. Fed Chair Jerome Powell called it a "preemptive" move against risks, rather than an attempt to revive a weakening economy. He hinted at two more potential adjustments this year.

Analysts believe the Fed's move could narrow the bond yield gap between the US and Asian countries, easing concerns about exchange rates. Many Asian economies, especially those facing domestic challenges, will have more room to lower their own rates.

"The general policy stance in the region is likely to be more accommodative," said Peiqian Liu, an economist covering Asia at Fidelity International.

People walk on a street in Seoul, South Korea. Photo: Reuters

People walk on a street in Seoul, South Korea. Photo: Reuters

Some central banks in Asia had already cut rates to mitigate the impact of US tariffs. South Korea lowered its rate to a near three-year low in May. India reduced its rate by 50 basis points (0.5%) in June, and Australia cut its rate to a two-year low last month.

However, interest rate differentials still exist due to varying economic conditions, Liu noted. Export-dependent economies such as South Korea, Japan, and Singapore all recorded better-than-expected second-quarter growth. Seoul and Singapore narrowly avoided a technical recession.

Betty Wang, chief economist at Oxford Economics, believes that Asian central banks, such as those in South Korea and India, could further reduce rates in Quarter IV. "Initial concerns about the potential for rapid currency depreciation due to tariffs haven't materialized. Instead, a weaker dollar is giving Asian countries more room to ease policy and boost economic growth," Wang said.

Chi Lo, Asia-Pacific currency strategist at BNP Paribas Asset Management, agrees. He points out that real interest rates in many countries in the region are higher than average, allowing banks to continue cutting rates.

India's strong economic growth over the past two quarters has been driven primarily by domestic demand rather than exports. Liu believes India will continue to prioritize domestic growth through policy easing, due to weakening external demand and higher US tariffs.

Last month, India's inflation rate accelerated for the first time in 10 months, reaching 2%, which is still within the central bank's 2-6% target range. "India has plenty of room to cut interest rates to support growth if needed," Liu said.

Chi Lo notes that the Fed remains caught between slowing growth and fears of high inflation in the US, limiting it to a "short cutting cycle." Meanwhile, fundamental factors in Asia, such as stable growth and low inflation, allow for longer-term cuts, especially with the USD trending weaker.

However, two Asian nations are bucking the trend of interest rate cuts: China and Japan.

Japan's central bank has maintained its interest rate and even aims to raise it to normalize monetary policy after a long period of negative rates. In its policy meeting on 19/9, it held the rate at 0.5%. However, investors predict a potential increase this year as inflation has remained above the 2% target for the past three years.

Meanwhile, on 18/9, China announced that it was holding its short-term benchmark lending rate at 1.4%. The country is currently balancing the need for easing with concerns about a stock market bubble.

China's economy showed several signs of decline in August, with export growth slower than expected and indicators such as retail sales and industrial production falling short of expectations.

However, Tianchen Xu, chief economist at the Economist Intelligence Unit, notes that the yuan has remained strong amid a weakening USD. "Chinese officials may be trying to prevent the currency from appreciating too much, rather than worrying about depreciation," Xu said.

On 18/9, the offshore yuan rose 3% against the USD, with one USD buying 7.11 CNY. The exchange rate is forecast to reach 7 CNY per USD by the end of the year as Beijing focuses on addressing deflation and boosting growth.

However, Xu asserts that the Fed's rate cut will open up more options for the People's Bank of China (PBOC). He predicts that China will ease monetary policy in the medium term to address domestic challenges.

Ha Thu (according to Reuters, CNBC)