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Business News/ Industry / BlackRock says Asian central banks not done with monetary easing
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BlackRock says Asian central banks not done with monetary easing

BlackRock predicts the Bank of Korea will probably reduce its seven-day repo rate by another 25 basis points this year to 1.50%

We don’t expect any central bank in Asia to hike rates in 2015, Joel Kim, the head of Asia-Pacific fixed income at BlackRock, which oversees $4.65 trillion, said. Photo: BloombergPremium
We don’t expect any central bank in Asia to hike rates in 2015, Joel Kim, the head of Asia-Pacific fixed income at BlackRock, which oversees $4.65 trillion, said. Photo: Bloomberg

Singapore: The world’s largest money manager said Asian central banks aren’t yet done with monetary easing and this will help power bond rallies in India, China, South Korea and Thailand even as US interest rates start to climb.

“We don’t expect any central bank in Asia to hike rates in 2015," Joel Kim, the head of Asia-Pacific fixed income at BlackRock Inc., which oversees $4.65 trillion, said in an interview in Singapore on Tuesday. “They have to look at their own economies. Growth needs to be strong, and pretty much in every Asian country right now inflation is way below their targets."

Local-currency debt in Asia has returned 1.1% this year, led by a 5.3% advance in Indonesia and 2.7% in South Korea, Bloomberg indexes show. Central banks in India, China and Thailand are among more than 20 monetary authorities across the world that have lowered benchmark interest rates in 2015 to boost economic growth amid cooling inflation.

BlackRock predicts the Bank of Korea will probably reduce its seven-day repurchase rate by another 25 basis points this year to 1.50% following a surprise 25 basis-point cut on 12 March, Kim said. China’s reserve requirement ratio could be lowered by another 50 to 100 basis points this year, while authorities will keep the yuan “relatively stable," he said.

The People’s Bank of China lowered borrowing costs for the second time in three months effective 1 March, cutting the one-year deposit and lending rates by 25 basis points each to 2.5% and 5.35%, respectively. In February, it reduced the amount of reserves that banks have to keep on hand.

Depreciation risk

Yuan depreciation risks that are spurring capital outflows are complicating efforts to bring lower borrowing costs, according to Kim. The currency has strengthened 0.16% in Shanghai this year even as the PBOC lowered its reference rate by 0.4%, data compiled by Bloomberg show.

Yuan positions for foreign-exchange purchases at Chinese financial institutions, a gauge of capital flows, fell by 108.3 billion yuan ($17.5 billion) to 29.3 trillion yuan in January, the lowest in a year. That followed a drop of 118.4 billion yuan in December, signaling the biggest outflow since 2007. The positions increased by 42.2 billion yuan in February, the central bank reported on Wednesday.

“If you depreciate your currency more at a quicker pace, the problem would only get bigger," Kim said. “More money would leave and that is complicating domestic growth." Reserve-ratio cuts “are not even for easing, but to compensate for all the money that is leaving China right now," he said.

Growth forecasts

Developing Asia will grow 6.4% this year, slowing from an expansion of 6.5% in 2014 and 6.6% in 2013, according to forecasts by the International Monetary Fund (IMF) released in January. China, Asia’s largest economy, is targeting growth of about 7% this year, the slowest goal in more than 15 years.

The Bloomberg Dollar Spot Index, which tracks the greenback’s performance against 10 major peers, has advanced 6% this year amid the prospect that the Federal Reserve will raise interest rates as the US economy recovers. Half of the 10 most actively traded Asian currencies outside of Japan have appreciated against the dollar this year, led by a 1% advance in the Indian rupee and 0.7% in the Taiwan dollar.

“We still feel Asia currencies will outperform other emerging markets and also other developed-market currencies," Kim said. To limit the fallout from a strong dollar, BlackRock is opting to fund trades through the yen or the euro, he said. Bloomberg

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Published: 20 Mar 2015, 10:13 AM IST
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