Fed's rate cut will not halt Asian slowdown<\/p>\n
SINGAPORE (AFP): The snap decision by the U.S. Federal Reserve
\nBoard to cut key interest rates will not be enough to spare Asia
\nfrom being caught in a U.S.-led global economic slowdown,
\nanalysts warned on Thursday.<\/p>\n
Although there would be positive spin-offs, including some
\nAsian central banks following the U.S. in cutting interest rates
\nand a boost to Asian exports, the full impact of the benefits
\nwould not be felt immediately, they said.<\/p>\n
"Interest rate cuts will benefit economic growth with a time
\nlag," said Gerard Teo, a Singapore-based regional currency
\nstrategist at Dutch bank ABN Amro.<\/p>\n
"The fact is that Asia will not escape a slowdown ... Why
\nwould it change anybody's plans overnight? The global economy
\nwill still slow down."<\/p>\n
Steve Brice, a treasury economist at Standard Chartered Bank
\nagreed, saying "it's very positive for Asian economies in terms
\nof U.S. demand for Asian goods, ... but it doesn't mean that U.S.
\ngrowth will bounce back up. It just reduced the downside risk in
\nthe U.S.."<\/p>\n
What the Fed's monetary easing, made between scheduled policy-
\nmaking meetings, was unable to do was dispel concerns over the
\npace of reforms and political uncertainties in Asia.<\/p>\n
Asian problems "won't disappear just because (Federal Reserve
\nchairman Alan) Greenspan cuts interest rates," Teo said<\/p>\n
"Investors will refocus on these issues later and realize the
\nproblems in Asia have not disappeared overnight."<\/p>\n
Thailand, Indonesia and South Korea -- which received multi-
\nbillion dollar bailout packages from the International Monetary
\nFund during the 1997 regional financial crisis -- are struggling
\nto implement a raft of structural reforms.<\/p>\n
"There is still a lot of work to be done to improve the
\neconomic structures in Asia and concerns on the pace of
\nstructural reforms remain," Teo said.<\/p>\n
Economists were divided on the impact of the U.S. rate cuts on
\nJapan, the region's economic superpower and the world's second-
\nlargest economy. Japan is still struggling to emerge from a
\ndecade-long slump and there are fears it could slip back into
\nrecession.<\/p>\n
Peter Morgan at the HSBC in Tokyo said the Fed move was not
\nenough to stop the U.S. going into recession, and was likely to
\nbe the first cut in a series.<\/p>\n
"The impact in Japan will be more focussed on the slowdown in
\nexports ... and that will affect Japanese exports not only to
\nU.S. directly but exports to the rest of Asia as well because the
\nregion's growth is firmly linked to U.S. growth."<\/p>\n
But Paul Sheard, an economist with Lehman Brothers Japan Inc.,
\nargued the cut should steer the U.S. economy towards a soft
\nlanding.<\/p>\n
"From that perspective of the U.S. economy slowing less than
\nit probably would have, all other things being equal it will
\nprobably be good for the Japanese economy," he said.<\/p>\n
Reaction from Asian central banks was expected to be mixed.<\/p>\n
The Hong Kong Monetary Authority moved immediately, cutting
\nits base rate by half a percentage point to 7.5 percent, and the
\nHong Kong Association of Banks is expected to cut lending and
\ndeposit rates by the same margin on Friday.<\/p>\n
Hong Kong Financial Secretary Donald Tsang hailing the U.S.
\nmove, said lower interest rates "will help the people who are
\nservicing mortgages, it will help businesses in borrowing money
\nfrom the banks, and it might give some incentive to the
\ninvestment in the securities market."<\/p>\n
Economists doubted there would be any immediate reaction from
\nthe Bank of Japan or the Monetary Authority of Singapore, while
\nthe Singapore-based DBS banking group forecast the Philippine
\ncentral bank would ease its rates by 50 basis points to 13
\npercent.<\/p>\n
Philippines central bank governor Rafael Buenaventura
\nconfirmed it would consider rolling back rates on Friday and the
\nU.S. measure "will give the central bank more flexibility."<\/p>\n
Bank Indonesia governor Sjahril Sabirin,, said the central
\nbank would not automatically lower interest rates to follow the
\nU.S., while Bank of Thailand assistant governor Thirachai
\nPuvanartnaranubala said the Fed move would not affect the central
\nbank's interest rate policy.<\/p>\n
Although analysts expected Australia to lower interest rates,
\nacting prime minister John Anderson said it was up to the central
\nbank to consider an appropriate response.<\/p>",
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