Asian stocks experienced a significant uptick on Thursday following the Federal Reserve’s announcement of its first interest rate cut in four years, a move analysts believe paves the way for a potential soft landing for the US economy.
The US dollar strengthened, and yields on long-term bonds rose as global markets reacted positively to the Fed’s long-anticipated decision to lower its benchmark rate by 50 basis points, bringing it to a range of 4.75% to 5.00%.
At the midday break, the Stock Exchange of Thailand Index had gained 11.94 points (0.8%), reaching 1,447.71.
Gold prices, which had approached $2,600 an ounce just prior to the Fed’s announcement, retreated to $2,558. Thai selling prices were reported at 40,500 baht per baht-weight (15.2 grams), down 50 baht from the previous day.
Thai Deputy Finance Minister Paopoom Rojanasakul promptly commented on the Fed’s decision, stating that local interest rates should align with global trends.
He emphasized the need for coordination between the central bank and the finance ministry to ensure that monetary and fiscal policies work together to stimulate economic activity. “Thailand’s policy interest rate must be consistent and appropriate in light of the global economic landscape and the trajectory of international interest rates,” he explained to reporters.
For several months, the Pheu Thai government has been attempting to persuade the Bank of Thailand to lower its current key rate of 2.50%, but has yet to achieve success. The next rate meeting is scheduled for October 16.
The Fed’s decision to cut interest rates, particularly by such a significant amount, reflects a more optimistic outlook on the US economy and enhances prospects for a soft landing. It is also expected to alleviate some of the challenges faced by Asian assets, including high valuations, China’s economic slowdown, and increasing trade tensions, according to money managers and strategists consulted by Bloomberg.
“The rate cut signals to financial markets, businesses, and households that the Fed is committed to fostering growth,” remarked Gary Dugan, CEO of Global CIO Office in Singapore. “Asian markets should interpret the Fed’s action very positively.”
With lower rates in the US, emerging markets may have more flexibility to reduce their policy rates in order to promote growth.
On Thursday, the MSCI index tracking regional stocks rose by as much as 1.3%, while Japan’s Topix surged more than 2%, outpacing the muted response from US equities to the Fed’s decision.
Asian currencies displayed mixed results, but all—except for Hong Kong’s—have strengthened over the past month. The yen weakened as investors awaited an upcoming decision from the Bank of Japan on Friday.
The Fed’s latest quarterly projections suggest rates could decrease further by an additional 50 basis points over the course of its remaining two meetings this year.
Chairman Jerome Powell cautioned against presuming that significant cuts would persist, indicating that borrowing costs may need to remain above pre-pandemic levels. However, analysts believe that Asian central banks can now approach policy easing with greater confidence, free from concerns about currency pressures.
“We are gradually adjusting policy down towards a more neutral level,” Mr. Powell explained to reporters. “We are proceeding at a pace we deem suitable, based on current economic developments.”
