MODERATING inflation pressure across most of Asia offers central banks scope to cut interest rates further in the coming months, with India still an exception despite consumer prices easing last month.

The Asian Development Bank lowered its inflation forecast for the region last week, and China reported the smallest price gains in more than two years. Even though India's inflation slowed to 7.25 percent in June from a year earlier, official data showed yesterday, it remained above the central bank's comfort level. The June reading was below the median forecast of 7.61 percent in a Bloomberg News survey of 36 analysts and also lower than the reading for May of 7.55 percent.

India's relatively high inflation leaves its central bank constrained as counterparts across emerging economies take action. China and South Korea surprised markets with a reduction in interest rates this month, and Governor Amando Tetangco said three days ago the Philippines has scope to ease monetary policy.

Emerging-market policymakers "have by far the greatest room to counteract economic weakness," JPMorgan Chase & Co analysts led by Jan Loeys, chief market strategist in New York, wrote in a note. They can "boost spending through monetary stimulus, fiscal stimulus, or simply by providing more clarity about their future actions," they said.

Emerging-market policy rates remain a percentage point above emerging-market inflation and have plenty of room to come down in nominal terms, the analysts wrote.

The ADB reduced its inflation estimate for developing Asia to 4.4 percent this year from a 4.6 percent pace forecast in April. The Manila-based lender also cut its 2012 growth forecast for Asian economies, excluding Japan, to 6.6 percent from 6.9 percent, citing the impact of Europe's debt crisis and slower expansion in China and India.

Biggest economy

Price gains are easing across most emerging markets, helped by a decline in food and commodity prices. Inflation in China, Asia's biggest economy, slowed to 2.2 percent in June from a year earlier, and producer prices dropped for a fourth month.

In India, a weaker rupee, government spending and rising food prices are contributing to inflation. The rupee has slumped 19 percent against the US dollar in the past 12 months.

Elsewhere in Asia, the Philippines will release data for overseas remittances for May. The European Union's statistics office may say inflation in the 17-nation euro area in June was unchanged from a previous estimate of 2.4 percent, while a survey forecasts Switzerland will report industrial production fell in the first quarter from the previous three months.

In the United States, the Commerce Department yesterday said Americans cut their spending at retail businesses for a third straight month, as a weak job market made consumers more cautious. Retail sales fell 0.5 percent in June from May. The Federal Reserve Bank of New York may say its general economic index rose to 4 this month.

The fastest inflation among the biggest emerging markets prompted the Reserve Bank of India to unexpectedly leave interest rates unchanged on June 18 even after the economy expanded at the slowest pace since 2003.

"We expect the growth risks eventually to dominate the RBI's thinking and lead to greater monetary easing in the coming months," Barclays Plc economists led by Singapore-based Nigel Chalk wrote in a note. "However, given the complex domestic politics, the timing of any policy loosening is difficult to predict, especially given the RBI's recent hawkishness."

The People's Bank of China unexpectedly announced a reduction in benchmark lending and deposit rates on July 5, the second cut in a month, while the Bank of Korea lowered its benchmark repurchase rate last week for the first time in more than three years.

China's economy grew at the slowest pace in three years in the second quarter, data released on Friday showed, and Premier Wen Jiabao has said the government will intensify fine-tuning policies as the momentum for a recovery has yet to be established.

Fiscal stimulus may be more appropriate for the region than monetary easing, which risks spurring asset and price pressures, Frederic Neumann, Hong Kong-based co-head of Asian economic research at HSBC Holdings Plc, wrote in a note yesterday.

"Exports are about to drop off sharply, at least judging from various lead indicators," he said. "To avoid sudden weakness feeding on itself, measures are needed to bridge the lull in growth. Asia's most appropriate answer to the current slump in growth, therefore, lies in comprehensive fiscal measures, not in making money cheaper still."

Bangko Sentral ng Pilipinas Governor Tetangco said more easing may be possible as inflation in the Philippines moderates.

Sources of resilience

"The stance of monetary policy remains appropriate but things can change - a possible easing cannot be ruled out," he said in an interview in Manila on Friday. "While we have sources of resilience, we also have policy space on the monetary and fiscal sides to do more if necessary."

Price pressures have cooled even as the US$225 billion economy expanded 6.4 percent in the first quarter from a year earlier, the fastest pace in Southeast Asia based on a basket of 17 Asia-Pacific economies. Consumer-price gains slowed to 2.8 percent last month from a year earlier.

"One is never out of danger on inflation, but at this point in time risks are on the downside," Tetangco said. "The growth of the economy is not at the level that would lead to a breach of the inflation target."

Inflation will be in the lower half of his 3 percent to 5 percent target, Tetangco said, adding that his forecast applies to 2012 and 2013. The data are due to be released next month. The central bank cut the rate it pays lenders for overnight deposits twice earlier this year, by a combined 0.5 percentage point to 4 percent, before leaving it unchanged in April and June. The next policy rate review is on July 26.

Central banks in emerging markets "have become more dovish over the past one or two months and we do expect some monetary loosening," Sebastien Barbe, Paris-based head of emerging markets research and strategy at Credit Agricole CIB, wrote in a note.