BLBG: Rate Cuts Beckon From Thailand to Philippines as Europe Crimps Asia Growth
Asian central banks from Thailand to the Philippines may be preparing to cut interest rates in coming weeks as an escalating impact from Europe’s debt crisis prompts economists to scale back growth forecasts for the region.
Thailand will cut its benchmark one-day bond repurchase rate tomorrow, all 16 economists surveyed by Bloomberg News predict. Pakistan’s central bank may add to its previous rate cuts or refrain from raising borrowing costs, a separate survey showed. Two analysts expect the Philippines to cut its key rate on Dec. 1, the first predictions for an easing since August 2009 based on Bloomberg surveys.
Morgan Stanley lowered its Asian economic estimates this week as the region that led the rebound from the 2009 global recession sees export demand impaired by Europe’s sovereign-debt turmoil. Asia’s currencies and stocks have fallen in the past month as investors shun emerging-market assets and the faltering growth outlook prompts companies including Philippine Long Distance Telephone Co. to cut profit forecasts.
“Every single Asian country is slowing and many, such as Thailand, Taiwan, Hong Kong and Singapore, are teetering on the brink of a recession,” said Robert Prior-Wandesforde, Singapore-based head of India and Southeast Asia economics at Credit Suisse Group AG. “If the eurozone crisis escalates and leads to possibly a break-up scenario, we will see very aggressive monetary and fiscal responses across the board in Asia.”
European Threat
Economists from Morgan Stanley, UBS AG, Nomura International Plc and other banks have said European policy makers must step up their crisis response to prevent the 17- nation currency bloc from breaking up. Morgan Stanley’s Chetan Ahya lowered growth estimates for Asia excluding Japan to 6.9 percent in 2012 from 7.3 percent previously.
Deadly floods in Thailand and Pakistan as well as storms in the Philippines have further damped growth in those economies, adding pressure on policy makers to ease borrowing costs.
Thailand’s industrial output slumped by the most in more than a decade in October as the nation’s worst flooding in almost 70 years shut thousands of factories, including those operated by Western Digital Corp. and Honda Motor Co., a report showed yesterday.
The finance ministry cut its 2011 economic growth forecast to 1.7 percent to 2 percent from 2.6 percent previously, and Prime Minister Yingluck Shinawatra has proposed spending 130 billion baht ($4.2 billion) on rehabilitation and measures to prevent future floods after the disaster claimed more than 600 lives since July.
Start of Easing?
“The floods, coupled with clearer signs of weakening global demand, provide sufficient justification for the central bank to start its easing cycle,” said Santitarn Sathirathai, a Singapore-based economist at Credit Suisse.
Eight of the 16 economists surveyed expect the Bank of Thailand lower its key rate to 3.25 percent from 3.5 percent, with the rest predicting a half-point cut to 3 percent. It would be the first reduction in more than two years.
Governor Prasarn Trairatvorakul said last week the central bank will “significantly” cut its growth forecast for this year from the current 2.6 percent to reflect the damage caused by the floods. He said earlier this month the authority “has room” to cut the key rate to support the economy.
Philippine gross domestic product increased 3.2 percent from a year earlier in the third quarter, less than analysts estimated, a report showed yesterday. Tropical storms hurt farming and faltering government spending that slowed construction was compounded by a 13.1 percent plunge in exports.
Philippine Stimulus
Bangko Sentral ng Pilipinas may consider easing its policy rate, Economic Planning Secretary Cayetano Paderanga said after the report. Twelve of the 14 economists surveyed expect the central bank to keep the benchmark at 4.5 percent, with two predicting a cut to 4.25 percent.
President Benigno Aquino unveiled a 72 billion-peso ($1.6 billion) fiscal stimulus package in October, joining neighbors including Malaysia and Indonesia in seeking to protect growth. Bank Indonesia unexpectedly cut rates by half a percentage point to a record low this month to 6 percent.
The State Bank of Pakistan has already lowered borrowing costs by 2 percentage points since the end of July, as policy makers aim to boost economic growth from 2.4 percent in the year ended June 30, one of the slowest expansions in the past decade.
Economic expansion may be 0.5 percentage point lower than the government target of 4.2 percent after floods devastated the nation’s southern region, a finance ministry official said in October. Floods in August forced more than one million people from their homes, killed more than 400 people and damaged crops in the southern Sindh province that was still recovering from last year’s worst ever monsoon inundations.
Central bank Governor Yaseen Anwar may keep the discount rate at 12 percent, according to 8 of 14 economists surveyed. The rest expect him to lower the benchmark to 11.5 percent on Nov. 30.
“The central bank’s stance is definitely toward easing monetary policy given the risks to growth from the global environment,” said Saad Khan, an economist at Arif Habib Ltd. in Karachi.
To contact the reporters on this story: Karl Lester M. Yap in Manila at kyap5@bloomberg.net; Suttinee Yuvejwattana in Bangkok at suttinee1@bloomberg.net; Farhan Sharif in Karachi, Pakistan at fsharif2@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net
