Asia's interest rate cycle still has plenty of room left to manoeuvre

The mainland's weekend interest rate cut is a reminder that regional central banks still retain a lot of unused powder when it comes to igniting monetary stimulus.

That's good news for Asian policymakers who may need to light new fuses if they are to attack falling consumer prices and sluggish economic growth, BNP Paribas economists argue in several recent reports.

"Financial conditions remain uncomfortably tight in many economies, while inflation targets - official or implicit - are also in many cases being missed by a considerable margin," BNP Paribas economist Richard Iley wrote. "Rumours of the region's policy-easing cycle nearing an end are much exaggerated."

Financial-crisis-era American quantitative easing (QE) saw billions of newly minted US dollars flood Asian economies, which drove up inflation and asset prices, and forced regional central bankers to increase interest rates, even as their Western counterparts cut theirs to the floor.

As the US Federal Reserve now tapers its QE programme and prepares to raise rates, possibly as soon as September, Asian monetary policy has gone into reverse.

Mainland China, India, the Philippines, Thailand and South Korea will all need to loosen their monetary policy positions further if they are to hit inflation targets and boost bank lending, BNP Paribas says.

Thailand's inflation is the furthest below target and it is likely to cut 25 basis points off its current 1.5 per cent base rate level by next month, Iley predicts.