Asian central banks cut rates

Sep 27 | Updated: Sep 28 2008, 06:31am hrs
Asias central banks have started to cut interest rates, judging they need to counter the effect of the US financial crisis on their export-dependent economies as inflation peaks. Taiwans central bank unexpectedly reduced interest rates 12.5 basis points to 3.5% on Thursday, saying the global financial crisis had heightened the risk of an economic slowdown.

The Peoples Bank of China reduced its one-year lending rate to 7.20% from 7.47% last week and Australias central bank lowered borrowing costs on September 2, its first reduction in seven years. In Malaysia and Sri Lanka, central bank officials refrained from raising rates even as inflation accelerated to the highest in decades. The Philippine central bank may not need to raise interest rates further as inflation may have peaked at 12.5%, Economic Planning Secretary Ralph Recto has said. Bank Indonesias deputy governor Hartadi Sarwono last month said an interest rate of 9.5% may be adequate to slow inflation.

The central banks key rate is at 9.25% now. Merrill Lynch & Co this month cut its forecast for Asias growth in 2008 and 2009. The region will expand 7.7 % this year, and ease further to 7.3% in 2009. Both forecasts were reduced from previous predictions of 7.9 percent growth.

Theyre all pretty much done with raising interest rates, and those who didnt move probably wont have to, says Joseph Tan, chief economist for Asia at Credit Suisse Private Banking in Singapore. Asia needs to cushion against further downside risks to growth and guard against the fallout in the global financial system. Some economists are, however, concerned the interest-rates cuts will rekindle inflation.