Brexit mess boosts prospects of Asia central bank easings

Mon Jul 4, 2016 7:21pm EDT
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SINGAPORE (Reuters) - Britain's vote to leave the European Union has ramped up the urgency for some Asian central banks to ease monetary policy, as a prolonged period of uncertainty threatens a wider downshift in trade and investment.

Economists warn delayed investment decisions and a hit to jobs and consumption from Brexit will hurt exports from Asia's trade-reliant economies, which are already reeling from weak external demand, particularly from China.

A round of Asian central bank policy meetings in the region this month could reveal an increased bias to ease policy, if not deliver outright interest rate cuts.

"The uncertainty of the EU and UK relationship is likely to put a dampener on Asia's exports to that region, perhaps extending Asia's trade recession," said Khoon Goh, head of research in Asia at ANZ in Singapore.

HSBC sees increased prospects of easing in Australia, New Zealand, South Korea, Japan, China and Thailand although the risks of inflation from currency weakness could constrain policy options in emerging markets like India, Indonesia and Malaysia.

"Not everyone has the same room for maneuver," said Hong Kong-based Frederic Neumann, co-head of Asian Economics research at HSBC.

The Reserve Bank of Australia is widely expected to skip a chance to ease again when it meets on Tuesday, as it awaits second quarter consumer price data due on July 27, but markets are betting on a cut in August given low inflation and the Brexit uncertainty.

Central banks in South Korea and Malaysia meet next week and while economists don't expect them to ease either, their policy rhetoric could reveal a more dovish bias.

Korea last week unveiled an $8.5 billion economic support package to weather the Brexit shock, giving the central bank some room to hold off immediate policy stimulus.   Continued...

Protestors hold banners in Parliament Square during a 'March for Europe' demonstration against Britain's decision to leave the European Union, central London, Britain July 2, 2016.   REUTERS/Neil Hall