Most emerging Asian assets rallied on Thursday after the US Federal Reserve maintained its projections for three interest rate cuts this year, providing room for the regional central banks to begin considering monetary easing.
The South Korean won led gains in the region, appreciating 1.3% in its biggest intraday gain since Dec. 14, 2023.
The Malaysian ringgit followed suit, adding 0.7%.
Among equities, Taiwan rallied 2.1% to a record high, while Singapore advanced 1.4% to hit the highest level since Feb. 21.
The Indonesian 10-year benchmark yield slipped 4 basis points to 6.627%, hitting the lowest level in more than a week, while the Indian 10-year bond yield eased to 7.074%.
Overnight, the Fed held interest rates steady and indicated it was on track for three rate cuts this year while affirming that solid economic growth would continue.
“What the Fed tried to say from the new economic projection as well as the new Dot Plot is that they feel more confident in overall economic resilience,” said Poon Panichpibool, a markets strategist at Krung Thai Bank.
Asian currencies: Taiwan dollar, Korean won higher
Traders had braced for a possibility that the Fed’s economic projections could signal just two rate cuts this year, or a late start to monetary policy easing.
The CME FedWatch tool showed the market is pricing in a 76.2% chance of a Fed rate cut in June, compared to around 56% at the beginning of the week.
“The Fed’s decision could allow Asian central banks except for the BOJ (Bank of Japan) to deliver some rate cuts if needed from June,” Panichpibool said, adding that most policymakers in the region might not want to ease too soon given concerns about the stability of their respective currencies.
The Indonesian rupiah ticked up 0.3%, while local stocks were up 0.6%. The country’s central bank held its key benchmark rate steady on Wednesday and reaffirmed its conviction that monetary policy could be eased in the second half.
The Philippine peso was up 0.4%, while stocks climbed 0.7%.
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