Fed's rate cut will not halt Asian slowdown

Fed's rate cut will not halt Asian slowdown

SINGAPORE (AFP): The snap decision by the U.S. Federal Reserve
Board to cut key interest rates will not be enough to spare Asia
from being caught in a U.S.-led global economic slowdown,
analysts warned on Thursday.

Although there would be positive spin-offs, including some
Asian central banks following the U.S. in cutting interest rates
and a boost to Asian exports, the full impact of the benefits
would not be felt immediately, they said.

"Interest rate cuts will benefit economic growth with a time
lag," said Gerard Teo, a Singapore-based regional currency
strategist at Dutch bank ABN Amro.

"The fact is that Asia will not escape a slowdown ... Why
would it change anybody's plans overnight? The global economy
will still slow down."

Steve Brice, a treasury economist at Standard Chartered Bank
agreed, saying "it's very positive for Asian economies in terms
of U.S. demand for Asian goods, ... but it doesn't mean that U.S.
growth will bounce back up. It just reduced the downside risk in
the U.S.."

What the Fed's monetary easing, made between scheduled policy-
making meetings, was unable to do was dispel concerns over the
pace of reforms and political uncertainties in Asia.

Asian problems "won't disappear just because (Federal Reserve
chairman Alan) Greenspan cuts interest rates," Teo said

"Investors will refocus on these issues later and realize the
problems in Asia have not disappeared overnight."

Thailand, Indonesia and South Korea -- which received multi-
billion dollar bailout packages from the International Monetary
Fund during the 1997 regional financial crisis -- are struggling
to implement a raft of structural reforms.

"There is still a lot of work to be done to improve the
economic structures in Asia and concerns on the pace of
structural reforms remain," Teo said.

Economists were divided on the impact of the U.S. rate cuts on
Japan, the region's economic superpower and the world's second-
largest economy. Japan is still struggling to emerge from a
decade-long slump and there are fears it could slip back into
recession.

Peter Morgan at the HSBC in Tokyo said the Fed move was not
enough to stop the U.S. going into recession, and was likely to
be the first cut in a series.

"The impact in Japan will be more focussed on the slowdown in
exports ... and that will affect Japanese exports not only to
U.S. directly but exports to the rest of Asia as well because the
region's growth is firmly linked to U.S. growth."

But Paul Sheard, an economist with Lehman Brothers Japan Inc.,
argued the cut should steer the U.S. economy towards a soft
landing.

"From that perspective of the U.S. economy slowing less than
it probably would have, all other things being equal it will
probably be good for the Japanese economy," he said.

Reaction from Asian central banks was expected to be mixed.

The Hong Kong Monetary Authority moved immediately, cutting
its base rate by half a percentage point to 7.5 percent, and the
Hong Kong Association of Banks is expected to cut lending and
deposit rates by the same margin on Friday.

Hong Kong Financial Secretary Donald Tsang hailing the U.S.
move, said lower interest rates "will help the people who are
servicing mortgages, it will help businesses in borrowing money
from the banks, and it might give some incentive to the
investment in the securities market."

Economists doubted there would be any immediate reaction from
the Bank of Japan or the Monetary Authority of Singapore, while
the Singapore-based DBS banking group forecast the Philippine
central bank would ease its rates by 50 basis points to 13
percent.

Philippines central bank governor Rafael Buenaventura
confirmed it would consider rolling back rates on Friday and the
U.S. measure "will give the central bank more flexibility."

Bank Indonesia governor Sjahril Sabirin,, said the central
bank would not automatically lower interest rates to follow the
U.S., while Bank of Thailand assistant governor Thirachai
Puvanartnaranubala said the Fed move would not affect the central
bank's interest rate policy.

Although analysts expected Australia to lower interest rates,
acting prime minister John Anderson said it was up to the central
bank to consider an appropriate response.