Asia week ahead: RBA to stay on hold, RBI to cut again

The Reserve Bank of Australia and the Reserve Bank of India meet next week. Australia’s exceptionally weak labour report for October made a case for more RBA easing. Adding to the pressure was Governor Philip Lowe’s reluctance for quantitative easing, expressed in his speech earlier this week, which now has markets pricing in more interest rate cuts. However, many (including us) are sceptical we will get a rate cut next week; the implied market probability of a 25 basis point rate cut next week is only 12%.

Supporting the stable RBA policy call would be the third-quarter GDP data showing firmer growth. But, the release comes a day after the central bank meeting, which doesn't make it a timely input for policymakers.

Staying ahead in the global easing cycle, India's central bank looks poised to cut rates again by 25 basis point next week given that growth continues to be on a steady downward path. Governor Shaktikanta Das is determined to ease for as long as it takes. However, aggressive policy stimulus on both monetary and fiscal sides has started stoking inflation, pushing it above the RBI’s 4% comfort level in recent months, which means this could be the last cut of this easing cycle.

Trade, purchasing manager index (PMI), and inflation figures dominate the data calendar.

Korea’s trade data for November will serve as a guide to the rest of Asia’s exports this month. Even if the uncertainty on the US-China trade front continues, exports have at least stopped getting worse, including electronics exports, the mainstay of some Asian countries. Albeit ongoing trade noise, we expect the Asian trade picture to be clearer, and better too going into 2020, at least from a statistical perspective as the base effects will normalise, if not fundamentally. The export order components of manufacturing PMIs will be an interesting watch from this perspective.

Inflation remains benign throughout the region (spare India, as mentioned earlier). Low inflation and continued weak growth outlook suggest central bank policy should remain accommodative at least through 2020, though the current easing cycle has almost drawn to a close.