Asia-Pacific policy makers’ decisions to hold fire in the past two weeks could indicate a desire to retain an element of surprise in actions to maximize the impact of any move.
Singapore, India and Australia have joined Canada in wrong-footing markets by pausing after unexpected easings earlier in the year. Uncertainty over the timing of the Federal Reserve’s interest-rate increase and diminishing policy firepower among commodity exporters may help explain the pause, according to Valentin Marinov of Credit Agricole SA.
Standing pat “could be traced back to a willingness to preserve ammunition as currency wars rage on,” Marinov, head of Group of 10 foreign-exchange strategy in London, said in a research report. It may “also keep the element of surprise in place to maximize the impact of any future cuts,” he said.
Global policy makers are struggling with an outlook for slower growth and the specter of disinflation in response to China’s transition and a stagnant European economy. Two unscheduled moves put India in a group of at least 30 central banks that have eased monetary policy this year, while Australia cut rates in February for the first time since August 2013.
Singapore’s central bank, which uses the currency rather than rates to manage inflation, refrained from easing further Tuesday after reducing the pace of the local dollar’s appreciation against its trade partners in an unscheduled decision Jan. 28.
“Expectations about the first Fed move have been all over the place in recent weeks,” said Frederic Neumann, co-head of Asian economics research in Hong Kong at HSBC Holdings Plc. “But given continued weaker growth in China and declining inflation, we think that policy makers eventually will have to add easing later this year.”
Policy makers in Canada and Australia are also keen to avoid adding further fuel to hot housing markets. Low rates have helped drive Sydney property prices almost 40 percent higher from a trough in May 2012.
Singapore’s central bank was under pressure to add to the unexpected January policy easing in response to a faltering growth outlook coupled with the nation’s longest disinflation streak since the global financial crisis. While cheaper crude contributed to falling consumer prices, officials have said the economy stands to benefit on the whole as a net oil importer.