The real hit – if there is to be one – from the barriers erected by the White House will only be truly felt in 2026
By Daniel Moss
This was no banner year for Asia. Growth was sluggish and inflation sufficiently low to allow for interest rate cuts. But some of the reductions were grudging — often designed more to put a floor under expansions that struggled.
The sense of crisis that followed the imposition of US tariffs in April has abated. Leaders were able to negotiate duties down to levels that are uncomfortable without being catastrophic. What’s left is hard work and a need for officials to pick when to juice their economies, and by how much. The real hit — if there is to be one — from the barriers erected by the White House will only be truly felt in 2026.
If predictions are hazardous at the best of times, they are more fraught today. Here are some lessons and developments to watch.
China confounds… again
Forecasters came to grief in their calls on the world’s second-largest economy. Not because they erred in anticipating a sluggish performance — growth will reach Beijing’s 5 per cent target — but only just. China is skirting deflation, a real estate slump has left scars, and capital investment has dived. The flaw in many of the predictions lay in the policy response. Big banks got very excited by some language that emanated from the Politburo a year ago that suggested aggressive action to spur growth. That didn’t transpire. The People’s Bank of China shocked — by doing almost nothing. At the time of writing, only a single 10-basis-point move was forthcoming. PBOC deliberations are opaque. There are no minutes, transcripts, dot plots or dissents. The only safe call seems to be in pointing out that the economy could use a jolt. Just don’t count on it coming.
Leadership isn’t everything
The person at the helm a central bank must hunt for votes, overcome institutional inertia and tend to their credibility. Economic conditions need to be considered. I’m not talking about the next chair of the Federal Reserve. But Thailand, where politicians clamored for more aggressive rate cuts. In September, they got their chance to install a champion of looser policy. Vitai Ratanakorn had been a vocal critic of the outgoing Bank of Thailand governor and, as he prepared for his first meeting, bets piled up that a cut would be forthcoming. No deal: The main rate was kept at 1.5 per cent. Vitai did make dovish noises. He emphasized the four cuts in the prior year — and gave himself time to learn about the role and build consensus. Policy tends not to shift dramatically at the start of a boss’ term. Fed watchers, take note.
Don’t forget politics
There are rafts of academic papers and speeches on the superior results delivered by independent central banks. But autonomy is almost never pure. Chiefs are appointed by elected leaders and derive their mandate from the political process. Efforts to shape a monetary authority’s decisions are frowned upon — but tend to happen anyway. Bank Indonesia had been an outpost of technocratic expertise. But when Sri Mulyani Indrawati was forced out as finance minister in September, BI lost some protection. Governor Perry Warjiyo acted fast to reduce rates and went so far as to declare he was all-in on the growth agenda of President Prabowo Subianto, who took office last year. The rupiah is one of the weakest currencies in Asia, and BI keeps intervening to prop it up. Elections do, as Barack Obama once observed, have consequences.
Keep forward guidance on ice
A year ago I wrote that forward guidance should come in from the cold. As increases in the cost of living returned to something like normal, it made sense to again give investors confidence in the likely path of borrowing costs and minimize market disruptions. Reserve Bank of Australia Governor Michele Bullock disagreed: After each of her three cuts this year, she shunned the idea of guiding the market. With inflation now stirring again and the economy running warm, traders are anticipating hikes. Bullock’s reluctance to go there proved wise.
Japan really is different
The Bank of Japan last week raised its main rate by a quarter-point to 0.75 per cent. Governor Kazuo Ueda spent much of the year sounding lukewarm about the idea of another increase; the prior step was in January. But with the global economy escaping recession and inflation above the bank’s 2 per cent target, he took the opportunity to move. As Ueda enters the second half of his term, a legacy may even be coming into sight. He could be the only BOJ chief in the modern era to leave rates higher than he found them. Quite an achievement. Can the economy bear it? 2026 should tell us.
