The central banks of the Philippines and New Zealand provided one of the biggest surprises in the Asia-Pacific region and became two of the region's early movers in terms of lowering interest rates, according to Moody's Analytics Asia Pacific Economic Preview.
According to Moody's Analytics, surprises mounted through the previous week, with India recording its lowest inflation rate since August 2019 and South Korea's unemployment rate hitting a nine-month low. The week, they also brought significant political developments, with the prime ministers of Japan and Thailand heading for the door.
"The Reserve Bank of New Zealand and the Bangko Sentral ng Pilipinas, two of the region's most aggressive central banks in tightening monetary policy over recent years, changed course this week and cut their respective policy rates by 25 basis points. Until Wednesday, China had been alone in lowering interest rates," Moody's Analytics said.
Since May 2022, the BSP has lowered key policy rates by a cumulative 450 basis points, bringing the current interest rates to 6.5%. As for the RBNZ, the cumulative rate hikes totaled 525 basis points in the space of 20 months to May 2023, bringing the official cash rate to 5.5% from a record low of 0.25%.
Moody's Analytics added that those two rates now sit at 5.25% and 6.25%, respectively.
The report said that the improving inflation outlook has allowed both central banks to loosen monetary policy. The RBNZ considers the fight against inflation to be largely over.
Its statement indicated greater confidence that inflation in year-on-year terms will soon settle within its target range of 1% to 3% and hold there through the end of 2027.
As for the Philippines, while inflation in July broke the upper bound of BSP's target range for the first time since November, the central bank expects domestic inflation to settle within its 2% to 4% target range.
"While both calls went against our expectations for rates to stay on hold, neither decision was too much of a surprise given the recent slew of concerning economic data," the report stated
It added, "In the Philippines, household budgets are under pressure. The second-quarter GDP results showed back-to-back retreats in private consumption on a quarter-on-quarter seasonally adjusted basis. The start of the monetary policy easing cycle will go a long way to boosting private consumption—the country's main growth engine."
Meanwhile, Moody's Analytics added that the New Zealand economy has been through the wringer as climbing interest rates have curbed growth.
"Reduced government spending and easing population growth have not helped domestic demand either. According to RBNZ's projections, GDP will contract 0.5% in the June quarter from the March quarter, which compares with a past projection for 0.1% growth," the report said.
Moody's Analytics expects GDP to fall 0.2% in the next stanza. "If
these figures prove accurate, in the eight quarters up to and including the current quarter, the economy will have grown on only two occasions and been burdened by three technical recessions."
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