-Under the Chinese hard landing scenario, we would expect China to lead the easing cycle. The PBOC would both slash the Reserve Requirement Ratio (RRR) and conduct sizeable repo operations to ensure ample liquidity, which would lead to lower money market fixings. We conservatively estimate that the RRR would be cut by 4.5 percentage points from 20% to the post-Lehman low of 15.5%, which would in turn push front-end rates below 1.00%.
-Elsewhere in the region, we expect rates to fall towards the levels seen in 2008. The inflationary impact of cuts in domestic subsidies and tariff hikes in electricity and fuel would be overshadowed by the deflationary pressure from a sharp economic slowdown. India, Malaysia and Thailand would have the most scope to ease from current levels, while Taiwan and Indonesia have the least room to manoeuvre.