The coming year is shaping up to be a challenging one for Asian central bankers, confronted with a balancing act of supporting economic growth whilst guarding against potential volatility arising from the normalization of U.S. interest rates.
But there is one source of respite as policymakers tread this delicate course: receding inflationary pressures.
"The benign inflation outlook is helpful as it gives Asian policy makers breathing room at a time when global outlook remains multidirectional, with the U.S. economy showing strength while EU and China look to be losing momentum," said Taimur Baig, chief economist, Asia at Deutsche Bank.
With the exception of India and Indonesia, the bank sees no more than 4 percent inflation anywhere in Asia next year thanks to a favorable food and fuel price dynamic.
Some will cut…
There are rate cuts in store for China, India, and South Korea in 2015, the bank predicts.
The People's Bank of China (PBoC) and the Reserve Bank of India (RBI) are forecast to cut rates by 50 basis points and Bank of Korea by 25 basis points over the course of the year.
The PBOC has resisted calls for broad-based monetary easing this year, resorting to targeted reserve requirement ratio (RRR) cuts for banks which actively engaged in lending to the agricultural sector and SME customers.