May 17, 2021

Asian Central Banks Keep Interest Rates on Hold

The central banks of South Korea, Indonesia, the Philippines and Malaysia all kept rates unchanged at their policy meetings Thursday.

Asia-Pacific economies rebounded quickly after the global financial crisis, allowing central banks across the region to begin unwinding stimulus measures and emergency rate cuts well before the United States and Europe. The rate increases have also been aimed at combating the price rises that have accompanied speedy growth across much of Asia.

The steady flow of incremental rises that began last year has now ground to a halt, as policy makers across the region have adopted a wait-and-see approach while they weigh inflation pressures at home against the mounting global problems.

“In the coming months, the Korean economy appears on track for growth at around the level of its long-term trend,” the South Korean central bank said in a statement accompanying the announcement that it was keeping its key interest rate at 3.25 percent for the third consecutive month. “However, such factors as the weakening momentum of economic recovery in the U.S. and other major countries and the spread of sovereign debt problems in the euro area will act as major downside risk factors.”

The comments echoed those made by the Australian central bank, which earlier this week also kept rates unchanged.

India, which faces especially high inflation and depends less on exports than many other Asian nations — and is thus less directly affected by any downturn in demand in the United States and Europe — is expected to buck the trend with a rate increase later this month.

But for the most part, central banks in the region are expected to deliver few, if any, rate increases before the year is out.

At the same time, most Asian economies remain buoyant enough not to need fresh stimulus measures, like lower rates, economists said.

The debt turmoil in the euro zone and anemic growth in the United States are likely to weigh on Asian economies, especially those that depend on exports to the West for growth.

The effect is, however, unlikely to tip even the most export-dependent economies into all-out turmoil, economists said.

“Exports will suffer, no doubt. And that must hurt growth,” Frederic Neumann, co-head of Asian economic research at HSBC in Hong Kong commented in a note Thursday. “But Asia, for now, is fundamentally robust: savings still vastly exceed investment. Thus, a local financial crisis is not on the horizon.”

This is in marked contrast to the situation in the United States, Europe and Japan.

In the United States, President Barack Obama is expected to outline a major job creation package Thursday.

In Europe, where policy makers have been scrambling for months to prevent a debt crisis in several smaller euro-zone countries from spiraling out of control, the European Central Bank held its key interest rate at 1.5 percent Thursday.

In Japan, the government and the central bank have announced a string of measures this year to prop up the ailing economy and have kept borrowing costs at ultralow levels.

And in Brazil, the central bank delivered an unexpected rate cut last week in response to the deteriorating global growth prospects.

In Asia, by contrast, “deteriorating growth expectations probably won’t lead to significant monetary policy easing” for a while yet, Joseph Lau, an analyst at Société Générale in Hong Kong, wrote in a note. “Despite expectations for renewed policy easing in developed economies, Asia is unlikely to be quick to follow.”

At the same time, inflation is likely to remain problematic for an extended period in much of the region. “Central banks will be cautious about using up policy ammunition too freely or prematurely,” Mr. Lau wrote. “Excepting some token action, we expect to be underwhelmed by Asian policy making in the near term as caution reigns.”

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