The View | Why higher-for-longer interest rates may not be bad news for Asian property
- While some markets have seen sharp declines in prices and transactions, borrowing costs are not the only factor at play in the region. The supply-demand imbalance, for one, is just as important
At the beginning of this year, futures markets were pricing in six quarter-point cuts in US interest rates in 2024. The Federal Reserve, the world’s most important central bank, expected only half the amount of monetary easing. Yet, by the end of last week, investors were more cautious than the Fed, with only one cut this year fully priced in.
The dramatic reversal in bets on reductions in benchmark US borrowing costs is a function of both the strength of America’s economy – which has contributed to the stickiness of inflation – and overly optimistic assumptions about the scope for rate cuts, which up until last week the Fed had done little to counter.
The prospect of borrowing costs remaining higher for longer has rattled global markets, particularly Asian currencies which are under severe strain due to the surge in the US dollar. Morgan Stanley predicts many Asian central banks will be forced to delay rate cuts, with the easing cycle in the region likely to be “even shallower”.
For the rate-sensitive property sector, the rapid unravelling of bets on lower borrowing costs adds to the pressures and uncertainties, especially in those markets that have already suffered sharp declines in prices and transactions.