Domestic worries block lower rates in Southeast Asia
Domestic worries block lower rates in Southeast Asia
SINGAPORE (AFP): Domestic concerns will prevent interest rates
from trending down in key Southeast Asian economies, but 1996
could be a better year than 1995 for emerging markets, a report
obtained here yesterday predicted.
Investment house MMS International's Bond and Currency Outlook
report saw signs of a tight monetary bias in Malaysia, Thailand
and Indonesia as they try to check high current-account deficits.
In Singapore, firm credit demand underpinned by manufacturing
and housing loans and the possibility of fueling asset inflation
could prevent a lowering of interest rates, it said.
For Malaysia, MMS International predicted a moderation of
economic growth to 8.3-to-8.8 percent from an estimated 9.6
percent last year.
"Despite the slowdown, the twin problems of widening current
account deficit and rising inflation will continue this year," it
said.
The Malaysian government's unwillingness to slow down the
infrastructure program, a big contributor to the deficit,
"suggests that there is little scope for the deficit to narrow
significantly this year."
"Bank Negara is expected to maintain a tight monetary bias,"
but the pace of tightening will not be aggressive given the
prospect of rate cuts in the United States and Europe and fears
of "hot money" inflow, MMS International said.
The research house said concerns about the current account
shortfall could push the Malaysian ringgit down against the U.S.
dollar to "retest the 2.6000 level" although a sustained stock
rally could see the currency gain ground.
"It will not be a smooth ride, and we expect to see
intermittent bouts of ringgit weakness," the report said.
Thailand's economy was tipped to grow 8.5 percent this year
after posting 8.7 percent in 1995, and its worries over the
current account deficit "are unlikely to go away," it said.
It expected the Thai inflation rate to stay above the 5.3-
percent level for at least the first six months.
"This would force the Bank of Thailand to adopt a tight
monetary bias during the period," the report said, adding that
widening interest-rate differentials could entice greater capital
inflows.
The Thai baht was forecast to firm marginally, and spend the
year trading between the 24.80-25.40 level against the greenback.
Indonesia
MMS International said Indonesia's GDP growth would slow
marginally to 7.3 percent from an estimated 7.4 percent last year
"on the back of Bank Indonesia's tight monetary policy."
Indonesia's expansionary 1996-97 budget would prevent the
tight stance from changing, and interest rates should stay high
to curb loan growth, particularly in the real-estate sector, it
said.
The Indonesian rupiah was tipped to depreciate to the 2,405
level by the end of 1996 against the U.S. dollar as a result of
Bank Indonesia efforts to keep exports competitive.
Singapore's economy was forecast to grow 8.1 percent in 1996
on top of 8.9 percent last year which came with benign inflation
of less than two percent.
"Given the buoyant state of the economy and the low level of
inflation, the Singapore dollar has every reason to continue its
appreciation against the U.S. dollar and most other Asian
currencies," MMS International said.
It predicted that the currency could appreciate 2.5-to-3.5
percent to 1.3850 by year-end.
The report forecast a better year for emerging markets amid
signs of an improvement in global liquidity.
"But the lessons of the Mexican (peso) crisis last year are
not likely to be forgotten," it warned. "The economic
fundamentals of individual economies are likely to command much
more attention."