'Asian central banks unlikely to follow U.S. rate cut'

'Asian central banks unlikely to follow U.S. rate cut'

Agence France-Presse, Singapore

Domestic factors should prevent Asia's central banks from
falling in line to slash interest rates after the Federal Reserve
cut U.S. rates by hefty half a percentage point, analysts said
Thursday.

The U.S. rate cut would however give the region's central
banks more room to ease rates in the longer term if the global
economic downturn worsens, they said.

Bank of America economist Simon Flint said Hong Kong,
Thailand, Taiwan and Malaysia were the most likely to slash
rates, while Indonesia and the Philippines may need to weigh the
potential impact of such a cut on their currencies.

The Monetary Authority of Singapore had a "60-40" chance of
loosening monetary policy in January, Flint told AFX-Asia, the
financial news subsidiary of AFP.

Federal Reserve policymakers voted unanimously Wednesday to
cut key interest rates by half a percentage point to 1.25 percent
to boost a flagging U.S. economy.

It was the Federal Open Market Committee's first cut this year
to the federal funds target rate, which lies at a 41-year low,
and was twice as deep as expected by most market economists.

The downturn affecting Asian economies should temper the
region's central banks from rushing to trim rates, analysts said.

The Fed's move "is unlikely to generate a cut in policy
interest rates, on average, across Asia ex-Japan in the short
term," Singapore's DBS Bank said.

"The rate cut does give central banks in the region
flexibility... in the event of a worse than anticipated slowdown
in the global economy since inflationary pressures remain benign
on average across Asia ex-Japan," Southeast Asia's biggest lender
said.

Central banks would seek guidance from domestic factors, with
Hong Kong seen likely to follow with a 50 basis point cut in the
rediscount rate because of its currency board arrangement, it
said.

"In China and Malaysia, fixed exchange rate systems with
capital controls implies that interest rate arbitrage
opportunities are limited hence decoupling of policy rates from
FFR (Federal Funds Rates) movements," DBS said.

Countries where domestic considerations in terms of price
stability, unemployment and maintaining export competitiveness
are key concerns policy rates are unlikely to follow with a rate
cut, it added.

Steve Brice, the chief economist for Southeast Asia at
Standard Chartered Bank, said: "The Fed's move should allow
interest rates to remain lower for longer elsewhere, especially
in Asia."

He said official rate cuts are "now likely" in Taiwan and
Thailand "while rates should fall more quickly in Indonesia."

The Philippines could cut again but fiscal problems remain a
major concern, he added.

"The handful of central banks with a bias towards raising
rates may now feel more comfortable in leaving rates unchanged,"
Brice said, adding the Bank of Korea was likely to take heart
from the Fed and further delay any rate hikes.

Later on Thursday, the South Korean central bank announced it
would hold key interest rates at 4.25 percent for the sixth
consecutive month, despite inflationary pressures.

DBS Bank however said the Philippines and Thailand are
unlikely to cut rates in the fourth quarter "as the central banks
in these countries are concerned about competitiveness of their
exports through exchange rate appreciations."

It said "Indonesia is constrained by the monetary targets set
by the International Monetary Fund."

Taiwan "will most likely cut discount rates" but the degree
may be less depending on the central bank's view of the global
macroeconomic environment in the short term, DBS said.