Experts have predicted a wave of further monetary easing measures across Asian economies in 2015 after India joined China in cutting its interest rate this week.
The Reserve Bank of India (RBI) today cut its interest rate by 25 basis points to 7.5 per cent in a move that surprised the market, sending the value of the rupee and the stockmarket falling.
The RBI’s move is its second rate cut this year and follows a similar 25 basis point rate cut from China’s central bank on Saturday, as well as several similar cuts in many countries already in 2015, including Singapore and Indonesia.
But commentators have predicted the cycle of rate cuts is set to continue this year as central banks, particularly in Asia, have been given scope to stimulate economic growth in the face of lower inflationary pressures due to the low oil price.
Vanessa Donegan, head of Asia ex Japan equities at Threadneedle, said plummeting inflation in India had led to rising real interest rates, which are adjusted for inflation, and given the RBI scope for easing measures.
Ms Donegan said, as a result, she expected further interest rate cuts to come in 2015 for India, adding this was likely to be mirrored by other Asian economies this year.
Avinash Vazirani, manager of the Jupiter India fund, said the cut “simply marks another step on the route that should see the central bank reduce rates by much more than the markets are expecting over the course of the next few quarters”.
Mr Vazirani said the cut signalled that the RBI was “comfortable that inflation remains in control” and would continue to fall throughout this year, giving it scope for more cuts.
India is not the only country likely to keep slashing its rates, as Maarten-Jan Bakkum, emerging markets senior strategist at ING Investment Management, said following China’s cut on Saturday that “more stimulus is probably on its way”.
He said rate cuts would be one of the tools China will use this year to stimulate growth but he expected “given the large structural problems that are not really being solved” the cuts will be “relatively ineffective”.
