Explainer | What the US Fed’s interest rate cut means for Asian consumers

The last time the Fed slashed rates, central banks from India to Indonesia followed suit. Experts expect a similar response this time

And that’s a good thing – but there are caveats

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Published: 10:30am, 21 Sep 2019Updated: 11:10am, 21 Sep 2019

The US Federal Reserve’s move to lower interest rates by a quarter of a percentage point on Wednesday is its second cut in less than three months. After its previous reduction in late July – its first rate cut in more than a decade – central banks from India to Indonesia followed suit by slashing their own interest rates. Since then, Indonesia has cut its rate three times and New Zealand has said it will adopt a zero interest rate. Experts now predict that this trend – followed in South Korea, Malaysia, the Philippines and Thailand – will continue in the wake of the latest cut by the Fed.

Lower rates typically make everything from corporate lending to home loans more affordable to access – and analysts say the historic lows could encourage consumers and businesses to spend and invest more.

Joseph Cherian, director of the Centre for Asset Management Research and Investment at the National University of Singapore Business School, said: “Lower rates are always welcomed by companies and individuals who have to borrow to finance their activities and run their businesses.” Cherian said the rate cuts were an especially hot topic due to fears that uncertainty generated by the trade war between the US and China could catalyse a global recession.

Housing in Thailand could become more affordable. Photo: AFP

While the rate cuts should be a good thing for consumers and business owners alike, there are fears they may not be enough to prevent growth from stagnating in the region.

WHO BENEFITS?

Lower interest rates should make it cheaper for consumers across Asia to borrow for everything from homes to cars, and can help businesses attract foreign investors, but there are some caveats.

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.css-1mniedq{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;} The last time the Fed slashed rates, central banks from India to Indonesia followed suit. Experts expect a similar response this time And that’s a good thing – but there are caveats

The last time the Fed slashed rates, central banks from India to Indonesia followed suit. Experts expect a similar response this time

And that’s a good thing – but there are caveats