Asia Seen Holding Rates as Australia Cites Less Risk

Thailand and Taiwan may keep interest rates unchanged this week, joining Australia and most Asia-Pacific economies in holding fire to gauge the extent of China’s slowdown, inflation risks and the European crisis.

Thailand will maintain its benchmark rate at 3 percent tomorrow after two previous cuts, according to 19 of 21 economists surveyed by Bloomberg News, while all 10 economists in a separate survey said Taiwan may leave its key borrowing cost at 1.875 percent on March 22. Australia kept its rate unchanged on March 6 as a mining investment boom intensified and risks from Europe eased, minutes released today showed.

“Regional central banks mostly are still in this wait-and- see mode,” said Sylvia Chiu, an economist at SinoPac Financial Holdings Co. in Taipei. “Although the economic outlook is getting better as the U.S. economy is slowly coming out of the woods, it’s still uncertain whether it’s strong enough to drive a rebound in exports in Asia.”

Central banks from Malaysia to South Korea refrained from cutting rates this month as higher energy costs boosted inflation risks, reducing the scope for monetary stimulus to counter a Chinese slowdown and Europe’s slump. International Monetary Fund Deputy Managing Director Zhu Min said yesterday that China is “heading for a soft landing,” while a report last week showed an improving U.S. labor market.

A weakening in Chinese demand would hurt Taiwan’s growth, while surging oil prices would risk igniting inflation, Chiu said. Signs the U.S. economy is improving don’t dispel risks that include rising gasoline prices and a weak housing market, Federal Reserve Bank of New York President William C. Dudley said yesterday.

Shares Fall

Asian shares dropped today after China increased gasoline and diesel prices for the second time in less than six weeks, a move that may raise concern growth in the region’s largest economy will slow further, according to Dai Ming, a fund manager at Shanghai Kingsun Investment Management & Consulting Co. in Shanghai. The Australian dollar declined on speculation China’s expansion will slow, damping demand for exports.

The MSCI Asia Pacific Excluding Japan Index (MXAPJ) lost 0.6 percent as of 12:29 p.m. in Tokyo and the Shanghai Composite Index slid 0.8 percent. Australia’s dollar lost 0.4 percent to $1.0563 at 2:04 p.m. in Sydney after climbing 1.5 percent over the past three days.

In the region today, Taiwan may report export orders rebounded in February after two months of declines, climbing 13 percent from a year earlier, according to the median forecast in a Bloomberg survey of economists.

European Prices

In Europe, Germany may report producer price gains eased in February, while the U.K. is forecast to say inflation slowed last month, other surveys showed. The U.S. Commerce Department may say builders broke ground on 700,000 homes in February at an annual pace, the most in three months, economists predict. Building permits, a proxy for future construction, probably climbed 0.6 percent last month from January, a separate survey showed.

IMF head Christine Lagarde on March 18 cautioned policy makers against a false sense of security, highlighting elevated oil prices, debt levels in developed nations and the risk of slowing growth in emerging markets.

Weaker export growth and consumer spending may hurt Taiwan’s expansion this year, central bank Governor Perng Fai- nan said last week. The statistics bureau on Feb. 22 revised its GDP forecast for 2012 to 3.85 percent from an earlier projection of 3.91 percent, and said inflation this year may be 1.46 percent, compared with a previous estimate of 1.29 percent.

‘More Neutral’

The worst floods in almost 70 years and Europe’s sovereign- debt crisis have hurt Thai manufacturing and exports, and Bank of Thailand Governor Prasarn Trairatvorakul said last week there are no plans to raise rates now, as the central bank isn’t too concerned about inflation. Still, the monetary authority may revise its 2012 growth forecast to 6 percent from an earlier prediction of 4.9 percent after a slower-than-expected expansion last year, Deputy Governor Suchada Kirakul said last month.

“Many Asian central bankers can afford to be more neutral now from a very easing bias earlier,” said Santitarn Sathirathai, a Singapore-based economist at Credit Suisse Group AG. “Rising oil prices may not be a serious issue now, but central bankers always need to be forward looking.”

‘Downside Risk’

The Philippine central bank may pause after reducing the benchmark interest rate at both of its meetings so far this year as elevated oil prices threaten to spur inflation, Governor Amando Tetangco signaled this month. Crude oil prices have gained about 4.5 percent so far this year, and the Southeast Asian nation imports almost all its requirements.

Australia held the benchmark rate for a second month at 4.25 percent on March 6 after central bank Governor Glenn Stevens and his board reduced borrowing costs twice late last year. In the minutes released today, officials said the U.S. economy had emerged from its “soft patch” and there were signs of stabilization in Europe in early 2012 after a contraction last quarter.

“Members noted that while this downside risk could still materialize, this seemed somewhat less likely than a few months ago,” minutes released by the Sydney-based Reserve Bank of Australia showed. “So long as inflation remained well contained, there would be ample scope for the bank to ease policy in such a scenario.”

‘More Upbeat’

The European Central Bank is flooding the banking system with cheap money in a bid to avert a credit crunch after the market for unsecured bank debt seized up last year and funding from U.S. money markets disappeared.

The improvement in the global economy prompted investors to pare bets on an RBA rate cut next month to 18 percent, according to a Credit Suisse Group AG Index.

Policy makers “appear more upbeat, noting in particular a pick-up in U.S. activity and firm Chinese growth,” said Adam Carr, a senior economist in Sydney at ICAP Australia Ltd., a unit of the world’s biggest interdealer broker. “There is no real change in their view on the domestic economy, which they see at trend overall. The most likely policy outcome, with that backdrop, is rates on hold for some time.”

Growth in Australia is being driven by China, the nation’s biggest trading partner, which is buying up iron ore, coal and natural gas as millions of people in the world’s most populous nation move to urban centers.

“Despite data on the Chinese economy being more difficult to read than usual owing to the early timing of the Lunar New Year, it appeared that the Chinese authorities had been successful in slowing growth to a more sustainable pace,” policy makers said in the minutes.

Still, “the clearest downside risk to the outlook for Australia remained a sudden worsening in the situation in Europe and its flow-on effects to the rest of the world through trade, financial and confidence channels,” the minutes showed. “Members noted that a sharp slowdown, particularly in east Asia, would have significant implications for commodity prices and demand for Australian exports.”

To contact the reporters on this story: Michael Heath in Sydney at mheath1@bloomberg.net; Suttinee Yuvejwattana in Bangkok at suttinee1@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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