Wednesday, 4 March 2015

Why These Countries Don't Want to Join the Global Easing Club

by Enda Curran | 6:05 PM PST | March 3, 2015

Here are four Asian central banks bucking the global rate-cut fervor: Malaysia, Taiwan, Thailand and the Philippines have held off easing in recent months even as peers respond to the risks of disinflation, deflation and a slowdown in China, the main economic engine of Asia. 

China, India, Indonesia and Singapore have already joined the easing spree. Elsewhere in the Asia-Pacific region, Australia on March 3 signaled it might need to ease again after unexpectedly holding the key rate steady this month. South Korea's central bank is also tipped by economists to cut rates in the next few months after last easing in October.

The four central banks that aren't changing policy are holding on for different reasons and may change course at any point. Their worries vary from food inflation or high household debt levels to stock market speculation.

The Bank of Thailand hasn't changed its key benchmark rate from 2 percent since March 2014, even though it lowered its export and growth forecasts in December. Central bank Governor Prasarn Trairatvorakul has said that fiscal policy is a more effective way to boost the economy.

“We have to be careful. If we cut the rate and that leads to a bubble in stock market, it will be a lose-lose situation," he said in February.

Malaysian policy makers face the prospect weakening growth while grappling with a faltering currency, the ringgit. Bank Negara Malaysia has held its overnight policy rate at 3.25 percent since July, when it raised the benchmark.

A collapse in crude prices since then has hurt the oil-producing nation and prompted the government to warn of slower economic growth. That's complicating things for the central bank.

"The key to watch will be to see if Bank Negara Malaysia is going to lower its inflation forecasts ," said David Mann, Singapore-based head of Asia macro research at Standard Chartered Plc. "Yes, growth is slowing but only down towards trend after a period of above-trend growth."

The Philippines in February kept its benchmark rate unchanged at 4 percent for a third straight meeting after a pickup in growth. Bangko Sentral ng Pilipinas can hold its key rate for most of 2015 even as a lower inflation forecast gives policy makers more room to maneuver, Governor Amando Tetangco said.

Malaysia, the Philippines and Thailand are likely to remain on a divergent path from their rate-cutting peers, Bloomberg economist Tamara Henderson wrote in a March 4 note.
The big outlier is Taiwan, where the central bank hasn't adjusted interest rates since an increase in June 2011 to 1.875 percent. Some economists say the bank's next move may be up as growth quickens amid a pickup in exports. Yet the slump in oil prices has put a lid on inflation, taking pressure off the need to tighten. A rate hike could also drive the island's currency higher, hurting competitiveness compared with export rivals South Korea and Japan.

Standard Chartered's Mann says the central bank has been tightening liquidity in the money markets, "sending the opposite signal to what we would expect if they were seriously considering easing monetary policy."

Finally, the standout in the Pacific: New Zealand, which is expected to lift rates this year having been on hold since July.