Nomura sees Asian interest rates up

Nomura sees Asian interest rates up

TOKYO (AFP): Asian interest rates are expected to rise further to offset inflationary pressures, exerting a more negative effect on domestic demand in the coming year, according to the Nomura Research Institute.

The research arm of Nomura Securities Co. Ltd. said in the latest edition of its Capital Market Trends monthly that Asian economies were continuing to grow at a robust pace thanks to the strong yen and firm domestic demand.

"Strong economic growth, however, has led to inflationary pressures and a deterioration in their current account balances, prompting monetary authorities to tighten their credit reins," the institute said.

Economic growth in South Korea, Taiwan, Hong Kong, Singapore, Indonesia, Thailand, the Philippines and Malaysia "should moderate to a more sustainable level in 1995 as interest rates edge higher and the positive impact of the yen's appreciation diminishes," it said.

The institute noted that investment and private consumption in Asia had been strengthening on the back of rising wages and corporate profits.

"As a result, imports have been growing even faster than exports, leading to a deterioration in the current account balances. Indeed, domestic demand has replaced net exports as the engine of economic growth," it said.

Coupled with higher interest rates overseas, domestic interest rates have edged upwards from their lower levels with monetary authorities tightening credit to contain inflationary pressures arising from tight labor conditions.

"Both domestic and overseas factors suggest that interest rates should rise further, and their negative effects on corporate demand will become more apparent in 1995," the institute said.

"However, strong domestic demand, reflecting rising corporate earnings and wages and the implementation of major infrastructure projects, should keep the pace of economic expansion in these countries close to their potential growth rates."