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."