Asian equities slip on Fed decision; Indonesia drops as inflation rate eases

STOCKS in Indonesia extended losses on Thursday as data showed that the country’s inflation rate had eased, while other equities in the region slipped after the U.S. Federal Reserve flagged possible delays to interest rate cuts this year.

Equities in Jakarta slipped 1.6%, while the rupiah was flat at about 16,185 per U.S. dollar. Indonesia’s annual inflation rate cooled slightly in April as pressure from some food prices eased as the harvest season began, the country’s statistics bureau said, staying within the central bank’s target range of 1.5% to 3.5%.

Inflation in Southeast Asia’s largest economy has been within Bank Indonesia’s (BI) target range since mid-2023, but the central bank last week raised its policy rates to support the rupiah amid global uncertainty.

“Despite relatively stable headline inflation and a still-low core measure in April, we continue to view risks as being tilted towards more policy rate hikes if the IDR remains under pressure,” Barclays said, adding it expects the BI to only start cutting rates in the first quarter of 2025.

Taiwan stocks slumped nearly 1% while equities in the Philippines slipped 0.6%.

Among currencies, the Thai baht was the biggest gainer in the region, appreciating 0.8% against the U.S. dollar, while the Singaporean dollar edged 0.2% higher.

Overnight, the U.S. Fed held interest rates steady and signalled it is still leaning towards eventual cuts, but put a red flag on recent disappointing inflation readings that could possibly delay rates cuts.

It would be positive for the emerging Asia markets if the Fed starts cutting rates as expected, said Poon Panichpibool, a markets strategist with Krung Thai Bank.

“However, the pace of rate cuts and reasons behind the decision should be scrutinised carefully as well. For instance, if the Fed aggressively cuts rates due to incoming economic recession, that might not bode well for EM Asia markets.”

Markets are currently pricing in a 55% chance of a rate cut in September, according to the CME FedWatch Tool.

Back in Asia, South Korea’s consumer inflation eased in April for the first time in three months, supporting market expectations for monetary easing in the latter half of the year. The South Korean won edged 0.3% higher, while Seoul stocks slipped 0.3%.

The Malaysian ringgit edged 0.2% higher, while equities in Kuala Lumpur were trading flat. Markets in Mainland China were closed for a public holiday.

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** Microsoft to invest US$2.2bil in cloud and AI services in Malaysia – Reuters