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Asian Central Banks Cut Rates to Counter Impact of U.S. Crisis

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Shamim Adam
Saturday, Sept 27, 2008

Asia’s central banks have started to cut interest rates, judging they need to counter the effect of the U.S. financial crisis on their export-dependent economies as inflation peaks.

Taiwan cut borrowing costs on Sept. 25, joining China, Australia and New Zealand in easing the price of money this month. Inflation rates have slowed in Thailand and Sri Lanka, and policy makers in the Philippines, India and Indonesia forecast price gains will cool before the end of the year.

Lower borrowing costs may spur growth as the economies of the U.S., Europe and Japan weaken and the deepening credit crisis threatens to tip the world into a recession. Still, some analysts say the inflation fight isn’t over and that loose monetary policy or a surge in oil costs may spark another bout of higher prices.

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“The bias may be shifting too quickly to growth and that is not wise,” said Jan Lambregts, head of Asia research at Rabobank International in Hong Kong. “It’s too early to declare victory over inflation.”

The credit crisis led Lehman Brothers Holdings Inc. to file for bankruptcy and prompted the sale of Merrill Lynch & Co. to Bank of America Corp. this month. U.S. regulators have seized at least nine lenders since July, including Washington Mutual Inc. yesterday, the fastest pace in 15 years.

While the contagion from the turmoil isn’t likely to infect Asia’s banking systems, the credit crisis is hurting exports.

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Fewer orders for made-in-Asia goods are cooling industrial production in China, Singapore and Taiwan among others. Bank of Korea official Kang Myung Hun, who opposed a rate increase last month, said the nation’s slowing economy is more of a concern than accelerating inflation.


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This article was posted: Saturday, September 27, 2008 at 3:52 am

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