Asian rates may not be swayed by U.S. cut: Analyst
Asian rates may not be swayed by U.S. cut: Analyst
SINGAPORE (AFP): Battling high current account deficits and inflation fears, most Asian central banks are unlikely to match the latest U.S. interest-rate cut, analysts said yesterday.
The impact of the Federal Reserve's move on regional bourses was limited and the U.S. dollar was stable against Asian currencies as market players had largely discounted the decision, they said.
The U.S. Federal Reserve's Open Market Committee cut its interbank federal funds target rate Wednesday to 5.25 percent from 5.50 and its discount rate to 5.00 from 5.25 percent.
"There is not much room for an interest-rate cut," said John Lye, economist with the global investment house Merrill Lynch in Singapore, citing residual fears of overheating in such fast- growing economies as Malaysia and Indonesia.
"Basically you won't see any impact on Asian countries," Lye said of the Fed's move Wednesday to stimulate the sluggish U.S. economy.
The last Fed interest-rate cut, in December, had triggered a rally on Asian bourses but Wednesday's move had been widely anticipated.
The Monetary Authority of Hong Kong, an exception since its currency is pegged to the U.S. dollar, made a quarter-point cut in its liquidity adjustment facility rate.
The British territory' banking cartel will meet Friday to decide whether it too will follow the U.S. cut.
In Australia, the Reserve Bank was unlikely to act on rates in the middle of an election campaign, said Citibank senior economist Stephen Koukoulas in Sydney.
"Also our economic fundamentals are different than those in the U.S. and Europe. We've got stronger economic growth and we have more concern about how rapidly inflation will decelerate," he said.
In most other Asian economies, domestic concerns over current account deficits and inflation would hold their central banks back from loosening monetary policy, analysts said.
"If anything we expect interest rates in Malaysia and Indonesia to remain firm, even head higher," said Andy Tan, general manager of MMS International in Singapore.
"In the case of Thailand, the current account deficit does not allow for much flexibility in cutting rates," Tan said.
In the Philippines, the outlook for interest rates is linked to inflation and the government's ability to control it.
Nomura Research Institute predicted in a recent report that most Asian central banks would not be able to follow U.S. interest-rate cuts because of the deficits it called "Asia's Achilles Heel."
Indonesia's 1996 current account deficit was projected at US$8.1 billion, widening from $7.1 billion last year. Malaysia's deficit was tipped to narrow to $6.7 billion from $7 billion.
The Philippines' 1996 deficit was forecast at $4 billion, up from $3.9 billion in 1995. Thailand's was predicted to fall from $13.2 billion to $13 billion.
Asia's interest-rate differentials have been kept high to attract non-resident deposits.
Malaysia has announced moves to tackle inflation, shore up the sliding ringgit and curb consumption by boosting bank reserve requirements that would help push up interest rates.
The U.S. rate cut would give Malaysia a "little more room," said Manminder Singh, senior economist with Nomura Research.
"Because U.S. rates have gone down, Malaysia's rates will look attractive," Singh said. "It won't have to raise rates that much in the coming months."
Strong loan demand in Singapore has contributed to keeping interest rates steady but a further Fed cut in February could see local rates falling, analysts said.
"Banks here are enjoying high loan-to-deposit ratios," said Tay May Yuen of Crosby Securities. "Since loan demand is still very strong, there is no reason for them to cut rates to boost bottomlines."