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Asian central banks stay cautious after Fed moves

Asian central banks stay cautious after Fed moves
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First Published: Tue, Mar 18 2008. 01 03 AM IST
Updated: Tue, Mar 18 2008. 01 03 AM IST
Central bank and finance officials across Asia said they aren’t taking any immediate action in response to the US Federal Reserve’s emergency weekend decision to cut the rate on direct loans to commercial banks.
“We are closely monitoring the global financial markets,” Bank of Korea deputy governor Rhee Gwang Ju said on Monday in Seoul. The Thai central bank said the Fed move wouldn’t prompt it to follow suit and Indonesia’s monetary authority said the cut to the discount rate may ease pressure that pushed the rupiah lower. US Federal Reserve chairman Ben S. Bernanke’s latest move to ease strains in financial markets sparked a slump in the dollar and Asian stocks. The Fed also approved the financing of JPMorgan Chase and Co.’s purchase of Bear Stearns Companies Inc., Wall Street’s fifth largest securities firm, for less than a 10th of its value last week.
“This is overwhelmingly a Fed event so far,” said Rory Robertson, an interest-rate strategist at Macquarie Group Ltd in Sydney. “The other central banks will get dragged in over time if it’s indeed a global credit crunch and if indeed other economies slow.”
China’s central bank governor Zhou Xiaochuan said the outlook for the US economy was different to China’s and added that his bank was closely monitoring financial markets. Central banks in Australia and New Zealand said they aren’t doing anything new. Officials in Japan and Malaysia declined to comment.
In an announcement before the start of trading on the Tokyo Stock Exchange on Monday, the Fed lowered its so-called discount rate by a quarter of a percentage point to 3.25% and opened up borrowing at the rate to primary dealers in government securities.
The move triggered a slump in the dollar, which tumbled to a 12-year low against the yen and a record low against the euro and the Swiss franc. Asian stocks fell, with the Nikkei 225 Stock Average shedding 3.7% and Australia’s S&P/ASX 200 Index ending 2.3% lower.
The cost to protect bonds from default soared after the Bear Stearns bailout sparked speculation a lack of cash may push other financial institutions to the verge of collapse. Benchmark credit default swap indexes in the Asia-Pacific rose to the highest since they began in 2004. The Fed also said it would provide financing for the JPMorgan takeover, including support for as much as $30 billion (Rs1.22 trillion) of Bear’s “less-liquid” assets.
JPMorgan Chase agreed to buy Bear Stearns for about $240 million after a run on the company’s stock ended 85 years of independence. Bear Stearns faced the prospect of bankruptcy as clients pulled $17 billion in two days last week and creditors stopped renewing loans.
China’s State Administration of Foreign Exchange, a currency regulator under the Chinese central bank’s jurisdiction, issued a statement on Monday saying it will “closely monitor the situation of the global economy,” citing deputy director Wang Xiaoyi.
Indonesia’s central bank said the Fed’s move may limit pressure that has been pushing the nation’s currency lower. The “rupiah won’t depreciate too steeply because the market anticipates that the Fed is expected” to also reduce its benchmark rate, Bank Indonesia deputy governor Hartadi A. Sarwono said Monday in an email response to questions.
The Bank of Japan also declined to comment on Fed’s latest actions, according to an official who spoke on condition of not being identified.
Japan’s central bank added 400 billion yen ($4.1 billion) to the financial system on Monday, an amount that was within expectations, according to Koji Ochiai, a senior market analyst at Mizuho Securities Co. in Tokyo.
“Taiwan doesn’t have a similar situation” to the US, George Chou, deputy governor of Taiwan’s central bank, said in a telephone interview in Taipei. “Taiwan banks are very conservative in their subprime-related investments.”
“To be conservative means you don’t earn a lot of money,” he said “On the other hand, when crisis occurs, you don’t get hit that much.”
John Pick, a spokesman for the Reserve Bank of Australia in Sydney, said: “It’s business as usual,” a comment that was echoed by Michael Hannah, speaking on behalf of New Zealand’s central bank, and Buddhika Sarathchandra, a Sri Lanka central bank official.
“I haven’t been advised that we’re making any announcements or pronouncements” or doing “anything new or different,” Pick said.
“Global financial markets are in a state of turmoil,” Australian Prime Minister Kevin Rudd said. “As a consequence, Australia cannot be made immune from the wash-over effects of those financial markets.”
South Korea won’t be “affected much” by the Fed’s latest move, deputy finance minister Shin Je Yoon told reporters on Monday in Gwacheon.
Thai central bank deputy governor Atchana Waiquamdee said the Fed move had no immediate implications for Thailand’s monetary policy.
“We don’t need to change our discount rate,” Waiquamdee said in an interview on Monday in Bangkok. “We have to study the impact of a US slowdown.”
The Fed’s rate steps will alleviate the global credit crunch, Hong Kong Monetary Authority chief Joseph Yam said at a briefing on Monday. The Hong Kong dollar is tied to the US currency.
Wahyudi Soeriaatmadja in Jakarta, James Peng in Taipei, Zhang Dingmin in Beijing, Seyoon Kim in Seoul, Suttinee Yuvejwattana in Bangkok, Theresa Barraclough and Naoto Hosoda in Tokyo, Yumi Teso in Singapore, Gemma Daley in Canberra, Anusha Ondaatjie in Colombo, Aaron Pan in Hong Kong, and Tracy Withers in Wellington contributed to this story.
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First Published: Tue, Mar 18 2008. 01 03 AM IST