New U.S. stance won't burn Asia's economies<\/p>\n
SINGAPORE (Reuters): The U.S. Federal Reserve's move towards a
\ntightening bias will affect capital flows in and out of Asia, but
\nthe region is well insulated against any adverse impact of more
\nrestrictive U.S. monetary conditions.<\/p>\n
The Fed discarded the neutral policy stance it had held since
\nNov. 17 last year, although Tuesday's move came as little
\nsurprise to financial markets after some worryingly strong
\ninflation data last week.<\/p>\n
In the past when currencies were fixed, Asia was more of a
\nslave to changes in U.S. rates because of the need to maintain
\ncurrency levels.<\/p>\n
But at the current stage of Asia's economic cycle, higher U.S.
\nrates do not presage the end to Asia's rate cutting cycle, and in
\nmany countries further cuts can be expected.<\/p>\n
"Asia should be able to decouple from the U.S. interest rate
\ncycle for two reasons," said Quah Hong Chye, strategist at
\nHypoVereinsbank in Singapore.<\/p>\n
"First, Asian currencies, other than the Hong Kong dollar, are
\nno longer pegged to the U.S. dollar. Secondly, credit growth
\nacross the region is still very soft... Banks have more deposits
\nthan they have people to lend to so rates will come off
\nregardless of Fed moves."<\/p>\n
Even in Hong Kong, where the local dollar is still pegged to
\nthe greenback, the Hong Kong Monetary Authority's Deputy Chief
\nExecutive David Carse was quick to point out that there was still
\nscope for lower prime rates.<\/p>\n
"The arithmetic is quite clear. You've got U.S. prime at 7.75
\n(percent), you've got Hong Kong prime at 8.25. You can see there
\nis a difference there of 50 basis points, which could allow some
\nscope for a small reduction in interest rates," he said.<\/p>\n
Even if a change in interest rate differentials does have an
\nimpact on the regional currencies the authorities will be
\nrelaxed.<\/p>\n
They are far more interested in spurring growth in a low
\ninflation environment by cutting interest rates rather than
\nprotecting the levels of their currencies.<\/p>\n
Countries like South Korea have been actively intervening to
\npush their currency lower for the sake of export competitiveness
\nso a firmer U.S. dollar is not likely to unduly worry central
\nbanks.<\/p>\n
In the Philippines, phone giant Philippine Long Distance
\nTelephone announced a 55 percent drop in first quarter net
\nincome, blaming the stronger peso.<\/p>\n
Analysts said the Fed's decision may not have been made just
\non the back of an apparent upturn in U.S. inflation data. Other
\nfactors may well have influenced the committee.<\/p>\n
"I think the Fed was looking at the international environment
\nas well as the domestic environment when it decided to adopt a
\ntightening bias," Steve Brice, regional treasury economist at
\nStandard Chartered Singapore, told Reuters Television.<\/p>\n
He said better economic data from emerging markets was
\ncoloring the Fed's view over the possibility of further global
\nmarket turbulence, but warned that risks remained in countries
\nlike Russia and Indonesia.<\/p>\n
Potential economic trouble spots like these were probably
\nstaying the Fed's hand on rates for now, he said.
\nThe Fed left the key Fed funds target rate unchanged at 4.75
\npercent.<\/p>\n
Analysts said even in Japan, over time, the relationship
\nbetween dollar\/yen and interest rates is actually very weak.<\/p>\n
HypoVereinsbank's Quah noted that even when the Fed went on a
\nsequential tightening in 1994, the dollar actually collapsed
\nbecause the tightening was in response to an overheated economy
\nwith a large trade deficit making financial assets unattractive.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/new-us-stance-wont-burn-asias-economies-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}