Will interest rates across Asian economies go up, down or stay where they are in 2014?
In a February 10 report titled “Asia Interest Rate Strategy,” Goldman Sachs makes the following predictions on five key markets: China, India, South Korea, Thailand and Australia.
Here are some key extracts:
Goldman Sachs expects the next rate cut from the Reserve Bank of Australia to take place in July (pushed back from an earlier estimate of March). The policy rate could be cut by a further 25 basis points to 2.25%, it adds.
(100 basis points make one percentage point.)
The financial firm also expects Australian policy rates to remain lower for longer than the market expects.
The main reasons for that view: business investment is declining, non-mining economic growth has been slow and fiscal policy is expected to tighten soon.
The early part of the year is expected to be stable, after a rapid hike in interest rates in the second half of 2013, according to Goldman Sachs.
Slower economic growth and a lower seven-day repo rate, on average, in the first quarter of this year compared with last year will challenge the central bank’s need to hike interest rates.
However, as growth picks up in the second half of this year, interest rates are likely to ascend once again.
As the Reserve Bank of India (RBI) shifts focus from wholesale prices to consumer prices, interest rates are likely to remain elevated in the first half of 2014 as monetary policy tightens further.
However, inflation is expected to moderate in the second half of 2014, although Indian interest rates are expected to remain volatile.
Goldman Sachs expects the central bank to hike the policy rate to 8.5% to ensure consumer price increases are limited to the RBI’s new (implicit) target of 8%.
The Bank of Korea is expected to cut interest rates in the second quarter of 2014 to counteract the effects of tighter financial conditions through 2013 and promote economic recovery. These efforts will be helped by limited inflationary pressures.
Goldman Sachs expects a 25 basis point rate cut in the second half of 2014, when a new Bank of Korea governor is appointed.
Further easing is expected from the Bank of Thailand, but that is largely priced in by the markets, notes Goldman Sachs.
The financial firm expects a rate cut before the end of the first quarter. Growth is expected to gather pace in the second half of the year on the back of higher exports as the global recovery continues and political tensions within Thailand dissipate.