Asia expected to maintain loose monetary policies<\/p>\n
SINGAPORE (AFP): Most Asian central banks are expected to
\nmaintain loose monetary policies in the short term to fuel
\neconomic growth despite interest rate hikes last week in the
\nUnited States and Europe, analysts say.<\/p>\n
Some are even banking on a drop in interest rates in Thailand,
\nIndonesia and India and have forecast that rates in Hong Kong --
\nmost vulnerable to US monetary tightening -- will still be at a
\nmodest level throughout 2000.<\/p>\n
A key factor helping Asian economies maintain low interest
\nrates is strong domestic liquidity, as many enjoy current account
\nsurpluses resulting from strong exports fuelled by weaker
\ncurrencies.<\/p>\n
\"Regional interest rates cannot de-couple from higher global
\nrates,\" ABN AMRO Bank said in a report released in Singapore at
\nthe weekend.<\/p>\n
\"But flush domestic liquidity and negative output gaps mean
\nthere will be some lag,\" it said.<\/p>\n
The Dutch bank said Asian nations which had posted stronger
\neconomic recovery from the financial crisis triggered off in mid-
\n1997 would see money market rates rise sooner than others.<\/p>\n
Britain's Barclays Bank said monetary policy in Asia would
\nfocus largely on domestic economic requirements.<\/p>\n
Desmond Supple, senior economist with the Barclays Capital in
\nSingapore, said the subdued nature of inflation despite robust
\nregional economic growth suggested loose policy settings for most
\nof 2000.<\/p>\n
US investment house Merrill Lynch said while it expected some
\njitters in Asian asset prices with each US interest rate hike
\nthis year, the strong recovery in Asian growth and exports should
\nmake this a temporary phenomenon.<\/p>\n
\"An analysis of the profile of Asia's external sector leads us
\nto believe that the region's economies are now showing greater
\nresilience to interest rate shocks,\" said Bill Belchere, head of
\nMerrill Lynch's Asia fixed income research and economics.<\/p>\n
Belchere said Asia, with its impressive stock of external
\nsurplus, was well positioned to neutralise global interest rate
\nincreases.<\/p>\n
\"In essence, too much liquidity, not too little appears to be
\nthe immediate problem facing Asia, at least for the next few
\nmonths,\" he said.<\/p>\n
Last week, the US Federal Reserve raised its benchmark
\ninterest rate by 25 basis points to 5.75 percent, with analysts
\nexpecting several more increases this year to cool down rapid
\neconomic growth in the world's largest economy.<\/p>\n
The European Central Bank also hiked rates by a similar margin
\nto 3.25 percent.<\/p>\n
Among Asian economies, Hong Kong remains vulnerable to higher
\nUS rates as its currency rate is pegged to the US dollar but
\nanalysts expect the territory's rate rise to be smaller than
\nexperienced in the United States.<\/p>\n
\"We expect Hong Kong dollar rates to remain at a modest
\ndiscount in 2000 given flush domestic liquidity, domestic
\nconfidence in the peg and minimal risk of renminbi (Chinese yuan)
\ndevaluation,\" ABN AMRO Bank said.<\/p>\n
It expects the central Bank of Thailand to cut rates by up to
\n50 basis points from current levels in the first half of 2000 --
\nagainst its previous view of stable rates over the period -- to
\nboost economic recovery and lower the domestic debt burden.<\/p>\n
Barclays Capital's Supple said monetary policy in Thailand
\nwould actually be eased throughout 2000 \"to support a
\ndisappointing economic recovery.\"<\/p>\n
He expects rates in Singapore, Taiwan and South Korea to
\nremain around current levels in the first of 2000, with only
\ngradual increases expected in the second half.<\/p>\n
ABN AMRO forecast Singapore's three-month interbank bank rate,
\nthe level at which banks borrow from each other, to rise about 50
\nbasis points to three percent by June and South Korea's short
\nterm rates to drift up soon after April's parliamentary
\nelections.<\/p>\n
In India and Indonesia, rates could still decline given modest
\ninflationary pressures, it said, cautioning however that
\npolitical uncertainty in Jakarta could constrain the magnitude of
\ndecline for Indonesian rates.<\/p>",
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