Fed’s Rate Cut Opens Door for Asian Central Banks to Ease Further

Following the U.S. Federal Reserve’s decision this week to reduce its benchmark rate by 25 basis points to a range of 4%–4.25%, analysts suggest that many Asian central banks now have more room to adopt looser monetary policies. Fed Chair Jerome Powell described the adjustment as a “risk-off” measure rather than a response to weakening fundamentals, and he hinted that two additional cuts could still be on the table this year.

Economists note that the Fed’s move could lessen the yield gap between the U.S. and Asia, reducing pressure on exchange rates and giving countries facing internal challenges greater scope to cut borrowing costs. Some central banks in the region have already acted: South Korea lowered rates in May to their lowest in nearly three years, India cut by 50 basis points in June, and Australia followed last month with a reduction to a two-year low.

While local conditions vary, many export-driven economies such as South Korea, Japan, and Singapore have recently posted stronger-than-expected growth, with Seoul and Singapore narrowly avoiding technical recessions. Experts expect South Korea and India in particular to continue easing in the coming months, supported by stable currencies and a softer U.S. dollar. India’s growth has been fueled by domestic demand, and with inflation still within the central bank’s 2%–6% range, analysts believe there is significant room for further cuts if needed.

Specialists also point out that real interest rates across several Asian markets remain relatively high, which could allow for extended policy easing compared to the shorter cycle expected in the U.S., where policymakers are balancing slowing growth against stubborn inflation.

Not all countries are moving in the same direction, however. Japan has held its rate steady at 0.5% and may even consider increases later this year as inflation has remained above its 2% target for three years. China, meanwhile, kept its key short-term rate unchanged at 1.4% on September 18, as authorities weigh the need for stimulus against concerns about financial bubbles. Signs of weakness in China’s economy have emerged, with exports, retail sales, and industrial production all underperforming in August. Yet the yuan has gained ground against the dollar, rising 3% on international markets, and is expected to strengthen further toward the end of the year.

Economists suggest that while Beijing is cautious about allowing the currency to appreciate too quickly, the Fed’s latest move provides the People’s Bank of China with greater flexibility to adjust policy in the medium term to counter domestic pressures and sustain growth.