Asia faces rate-cut pressure

No show: The Jumbo Floating Restaurant sits illuminated at the Aberdeen South Typhoon Shelter in Hong Kong, Coronavirus has dampened tourism across Asia, leading to possible interest rate cuts. – Bloomberg

HONG KONG: Central banks in Asia face increasing calls to cut interest rates, as they jump into action against a spiraling coronavirus crisis that is hammering tourism, travel and confidence across the region.

The People’s Bank of China trimmed some interest rates Monday and injected massive liquidity into the financial system to shore up slumping markets. Indonesia’s central bank said it was taking “bold” steps to bolster the nation’s currency and bonds.

Asia – set to see the worst spillovers from the virus due to its dependence on Chinese demand and tourists – boasts a handful of central banks that have space to ease monetary policy in a world of rock-bottom interest rates.

Australia was first up, with the central bank keeping interest rates unchanged Tuesday, saying “it is too early to determine how long-lasting the impact will be” on China’s economy from the virus outbreak.

The Reserve Bank of Australia will continue to monitor developments and remains prepared to ease monetary policy if needed, it said.

Next up is Thailand, where there were growing calls for a move Wednesday, but no consensus estimate so far that a cut is coming. By contrast, a reduction is expected Thursday in the Philippines, which has reported the first death from the coronavirus outside China.

India – which on the weekend announced a budget that underwhelmed those hoping for more stimulus – also sets policy Thursday.

A recent spike in inflation is expected to keep the central bank sidelined, but some economists think it will have to act at coming meetings to spur a faltering economy.

Growth risks are accelerating as China enforces strict travel curbs and airlines around the world suspend service to the mainland. Bloomberg Economics estimates that even if the virus outbreak was severe but short-lived, China’s first-quarter gross domestic product growth would hit a record low 4.5%. UBS Group AG’s China economist, Tao Wang, predicts a slump to 3.8%.

Even before the virus spiral, manufacturing gauges signaled a shaky start to the year as the US-China trade agreement failed to boost sentiment. South Korea’s purchasing managers’ index – a key barometer of global demand – fell to 49.8 in January from 50.1 in December.

In Thailand, restrictions on Chinese travel have hammered the tourism industry, which makes up about one-fifth of the economy.

Growth was already taking a hit from drought and government spending delays, with the central bank last week signaling it may cut its 2.8% forecast for economic growth this year.

“The central bank needs to do something to help shore up confidence now, ” said Burin Adulwattana, chief economist at Bangkok Bank Pcl.

“We used to think the revenue stream from tourism would help drive the economy this year while other engines are weak. Now that engine is gone. One cut may not be enough this year, depending on the severity of the pandemic.”

Bank Indonesia, which cut interest rates four times last year, stepped up intervention in the bond and currency markets Monday to stem losses in the rupiah.

Deputy governor Dody Budi Waluyo said the bank was open to further policy action as it assessed the impact of the virus outbreak, and “future utilisation of easing space would be carried out at the right timing.”

David Sumual, chief economist of PT Bank Central Asia in Jakarta, said if the situation worsened, “the government may opt to stimulate the economy via a more aggressive fiscal policy, since doubts remain over the efficacy of monetary easing amid tepid loan demand.” - Bloomberg

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