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."