Asian govts likely to hold back raising interest rates, analysts say

Asian govts likely to hold back raising interest rates, analysts say
By Rachel Kelly | Posted: 10 August 2011 2257 hrs

SINGAPORE: Asian governments are expected to hold back on raising interest rates for at least the next few weeks.

This follows the Federal Reserve's downbeat assessment of the US economy, and its stated intention to keep interest rates near zero for another two years.

Analysts said it is likely that regional governments will also keep interest rates on hold.

However, regional economies could be falling to the dilemma of interest rates being too low, but inflation being too high, and analysts said that real negative interest rates could be a problem.

In China, for example, inflation hit a three-year highs of 6.5 per cent in July.

Alvin Liew, senior economist at United Overseas Bank, said: "Certainly with that announcement, even though some of the central banks have some tightening bias, they may need to put it on hold for at least the next few weeks to look at how the market is going to pan out.

"One that is coming up the earliest would be Bank of Korea. I think market expectations are they will put their interest rate hikes on hold until more clarity in the financial markets.

"But, we do still see that some of the banks have a bias to some of the tightening.

"For example, in terms of China, we do see interest rate hikes sometime in Q3, but obviously the financial markets are not helping."

While Asian markets rebounded following Tuesday's Federal Reserve statement, further volatility is widely expected.

Mr Liew added: "If any data comes out that is more negative from the US, be it a jump in initial job claims or some negative comments coming out from the Senate due to the S&P downgrade, that could again send the markets down."

Wong Sui Jau, general manager at Fundsupermart, said: "On a fundamental basis, there is nothing wrong with Asia.

"But because US is such an important part of the world, so what we are likely to see (are) markets (starting) to stabilise going into next week because investors have some time to adjust and absorb the negative as well as the positive news."

- CNA/ck


- wong chee tat :)