The Philippines unexpectedly cut interest rates and South Korea reported the slowest economic growth in almost three years as Europe’s debt crisis weighs on exports and increases the likelihood of more easing in Asia.
Bangko Sentral ng Pilipinas reduced the rate it pays lenders for overnight deposits to a record-low 3.75 percent from 4 percent, a decision predicted by four of 16 economists in a Bloomberg News survey. The Bank of Korea said today that gross domestic product expanded 2.4 percent in the three months through June from a year earlier.
The Philippines’ move adds to central bank officials in Japan and Thailand who indicated yesterday they are ready to ease monetary policy if necessary. HSBC Holdings Plc forecasts that South Korea will cut interest rates further this quarter after Governor Kim Choong Soo said yesterday that Asia’s fourth- largest economy is losing steam faster than expected.
“The big tide from Europe is engulfing Asia and leaving many policy makers helpless,” said Lee Sang Jae, a senior economist at Hyundai Securities Co. in Seoul. “The worst may not be over yet.”
Asian stocks advanced for the first day in five after a drop in U.S. new home sales fueled speculation the Federal Reserve may take new steps to spur growth. The MSCI Asia Pacific Index added 0.8 percent, South Korea’s benchmark Kospi Index rose 0.7 percent and Japan’s Nikkei 225 Stock Average (NKY) rose 0.9 percent.
The Bank of Japan (8301) “will not hesitate” to loosen monetary policy should the world’s third-biggest economy face shocks, Deputy Governor Hirohide Yamaguchi said. Thai Assistant Governor Paiboon Kittisrikangwan said “we are ready to do more” if conditions deteriorate.
The world economy “has been on a bumpy road and we will see more bumps ahead,” Kim Young Bae, a Bank of Korea director- general told reporters in Seoul today after GDP figures were released. “But I hope and believe that the second half will be better as Europe is muddling through.”
In contrast, Finance Minister Bahk Jae Wan said downside risks to growth are rising. Citigroup Inc. said in a note today that odds have increased that the government will announce a supplementary budget and “it would not be so surprising” if the central bank cut interest rates next month.
Elsewhere in the Asia-Pacific region, New Zealand’s central bank extended a pause in the benchmark interest rate. Singapore’s industrial production rose more than economists estimated in June as pharmaceutical companies increased output, countering a decline in electronics.
In Europe, the rate of growth in M3 money supply, which the ECB uses as a gauge of future inflation, increased to 3.2 percent in June from 3.1 percent in the previous month, the European Central Bank said today.
M3 grew 3 percent in the second quarter from the same period a year earlier. M3 is the broadest gauge of money supply and includes cash in circulation, some forms of savings and money-market holdings.
In the U.S., durable goods orders in June may have risen 0.3 percent from the previous month, after a revised 1.3 percent gain in May, according to the median analyst estimate. A report by the Labor Department may show weekly jobless claims were 380,000 in the week ended July 21, compared with 386,000 the previous week.
South Korea exports decreased 0.6 percent in the second quarter from the previous quarter, when overseas shipments gained 3 percent, today’s BOK report showed. Corporate investment in facilities fell 6.4 percent from the previous quarter, when it rose 10.3 percent, while private consumption increased 0.5 percent after advancing 1 percent.
“Korean growth is becoming more dependent on domestic demand as global trade remains sluggish, lowering growth prospects,” Ronald Man, a Hong Kong-based analyst at HSBC Holdings Plc, said before the release. “Sustaining private consumption growth will be critical.”
Seoul-based LG Electronics Inc. (066570), the world’s No. 4 mobile- phone maker, reported yesterday that second-quarter profit missed analysts’ estimates after sales of handsets lagged behind rivals.
Not all news from Korean companies is bad. Hyundai Motor Co., the nation’s largest carmaker, today reported second- quarter profit that beat analysts’ estimates as sales of the Tucson sport-utility vehicle helped the company buck an industrywide drop in Europe.
The BOK lowered its main rate a quarter percentage point to 3 percent on July 12, the first reduction since February 2009, as it joined a global stimulus push from Europe to China. The following day, the central bank pared its 2012 growth forecast to 3 percent from 3.5 percent, the second cut this year.
“Considering exports account for about half of our economy, how can we stay immune to changes in the international landscape and the European crisis?” Bank of Korea Governor Kim said yesterday.
Economic support measures including assistance for small businesses and low-income earners announced on June 28 have yet to stem a slide in confidence. Consumer sentiment dropped to the lowest level in five months in July, the Bank of Korea said yesterday.
“There are increasing risks that the expected recovery will be later or weaker than currently assumed,” Ma Tieying, an economist with DBS Bank Ltd. in Singapore, said in a note before today’s release.
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