(Bloomberg) — Over the course of two days, three central banks surprised markets and economists with unexpected decisions regarding interest rates, each highlighting potential growth concerns in the months ahead and creating uncertainty in policy directions.
On Wednesday, New Zealand slashed its key interest rate by 50 basis points — double the forecast by most analysts — due to disappointing economic activity and business sentiments.
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Meanwhile, Thailand maintained its rate, despite forecasts of a decrease amid weak growth indications and a strong currency, with new Governor’s dovish tone. Citigroup economists termed this a “dovish pause,” anticipating further cuts later this year.
On Thursday, the central bank of the Philippines announced a 25 basis point decrease in interest rates, contrary to widespread expectations for a hold, following a corruption scandal that has diminished investor confidence.
Together, these moves highlight escalating domestic economic and market uncertainties exacerbated by President Donald Trump’s international trade policies since returning to office in January. His tariffs on trade partners have disrupted established relationships, shaking export and growth expectations in Asia, a major manufacturing hub.
“A major theme for Asia-Pacific central banks is the downside risks to growth, partly due to a less supportive trade environment,” noted Eugene Leow, a senior rates strategist at DBS Group Holdings Ltd. in Singapore.
In Indonesia, the central bank made a surprising rate cut last month in an “all-out, pro-growth” strategy, aligning with President Prabowo Subianto’s priorities. On the other hand, the Reserve Bank of India chose to keep its policy rate unchanged last week, a decision many economists deemed closely contested.
Though New Zealand, Thailand, and the Philippines share similar economic and trade risks alongside low inflation, their situations differ significantly.
Thai inflation remains below target, with numerous factors — including high household debt and political instability — hindering growth. The economy is also facing challenges with a baht that has appreciated more than 6% over the past half-year, negatively impacting tourism and exports. Its value rose further following the unexpected decision to hold rates.
In contrast, the Philippines’ central bank pointed to a corruption scandal in its choice to lower rates. Mismanagement of billions intended for flood-control initiatives has resulted in a decline in investor confidence and is likely to limit government expenditure on substantial projects.
