Nomura’s latest analysis signals that Asia’s monetary easing cycle is largely complete, despite low inflation persisting across many economies in the region. The bank highlights a growing north-south divide in monetary policy, marking a more fragmented phase for Asia’s central banks.
Several factors underpin this cautious stance. Improving economic growth, policy rates approaching neutral levels, and a desire among central banks to conserve policy tools have led to fewer expected rate cuts. Additionally, financial stability concerns—particularly rising housing prices—are limiting further easing in some countries.
This cautious approach in Asia contrasts with the United States, where Nomura’s U.S. economics team still anticipates two Federal Reserve rate cuts in 2026. Consequently, the bank suggests that Asia may diverge by maintaining a more hawkish stance compared to the U.S.
Nomura identifies a clear policy split within the region. In South Korea, Australia, New Zealand, and Malaysia, the easing cycle appears to be over, supported by stronger growth momentum. Bank Negara Malaysia is expected to raise rates in the fourth quarter of 2026 to counter emerging financial stability risks, while the Reserve Bank of New Zealand is forecast to resume rate hikes in 2027.
Japan presents a slightly different picture. Nomura expects one final Bank of Japan rate hike in December 2025, followed by an extended pause throughout 2026 as core inflation gradually eases below the 2% target.
In contrast, other Asian economies are likely to maintain an easing bias. Namely, India, Thailand, Indonesia, and the Philippines are expected to implement further rate cuts, driven by softer growth and muted inflation pressures. China is forecast to introduce a modest 10-basis-point policy rate cut, while fiscal policy will take on a greater role starting around spring 2026, particularly through increased lending by policy banks to local governments.
Nomura also highlights key risks to this outlook. Faster global growth and stronger Chinese domestic demand could provide upside surprises, while weaker U.S. demand, renewed trade tensions, or a sharp correction in AI-related investments pose significant downside risks.
Forex traders should consider this evolving regional monetary landscape, where Asia’s policy direction is diverging both internally and from the United States, impacting currency movements and cross-border capital flows.
Original Source: Eamonn Sheridan of investinglive.com
