Australia executed its first back-to-back interest-rate cut since 2009 and the Asian Development Bank cited escalating risks to its growth outlook, signaling lack of confidence in the region that Europe’s leaders have done enough to stem the sovereign-debt crisis.
Reserve Bank of Australia Governor Glenn Stevens lowered the overnight cash-rate target by a quarter percentage point, to 4.25 percent, confounding the forecasts of 12 of 25 economists surveyed by Bloomberg News. Philippine and Indonesian officials in the past day have said their central banks are also prepared to reduce borrowing costs.
“Policy makers want to bring down the cost of borrowing, and in some countries pump liquidity in the system, to spur growth to the domestic channel,” said Sailesh K. Jha, head of Asia markets strategy at Skandinaviska Enskilda Banken AB in Singapore, and a former ADB official.
Stocks retreated from Tokyo to Sydney as investor concern over Europe deepened in the wake of Standard & Poor’s putting 15 European nations on watch for potential sovereign-rating downgrades. The ADB, the Manila-based development lender, said there are “much greater downside risks” to economies in East Asia, casting doubt over its “cautiously optimistic outlook.”
The MSCI Asia Pacific Index of equities fell 1.3 percent at 1:20 p.m. Tokyo time. Asian currencies also dropped as investors turned to the dollar as a haven, with the Indonesian rupiah sliding 0.6 percent. The Philippine peso was down 0.4 percent and Thailand’s baht 0.4 percent. The Australian dollar fell after the rate decision, and is 0.8 percent lower today.
Jha recommended that investors buy Asian currencies such as the South Korean won, Singapore dollar and rupiah because the region’s relative economic strength will spur its exchange rates over a three-to-six month horizon.
A report today may show euro-region gross domestic product rose 1.4 percent in the third quarter from a year before, down from 1.6 percent growth in the second quarter and a 2.4 percent expansion in January to March, the median forecast in a Bloomberg News survey of economists shows.
Brazil may say that its GDP growth also moderated last quarter, to a 2.4 percent year-on-year pace from 3.1 percent in April to June. By contrast, growth in South Korea, Asia’s fourth-largest economy, accelerated to 3.5 percent in the third quarter from 3.4 percent the previous period, government figures showed today.
Easing inflation pressures across the Asia-Pacific region have given central banks more scope to consider monetary stimulus.
Philippine central bank Governor Amando Tetangco said in a text message that “as the favorable inflation outlook provides us flexibility, we are open to possible easing early next year, especially if our own growth prospects continue to be subdued.” The nation earlier today reported that consumer prices increased 4.8 percent from a year earlier, after a 5.2 percent gain in October, according to the gauge that uses 2006 as a base year.
Bank Indonesia will weigh the impact of any further rate cut on capital outflows when it sets borrowing costs this week, Perry Warjiyo, its director of economic research and monetary policy, said yesterday. “If we look at it from the point of view of slowing inflation, of course there’s still room to cut interest rates further,” he told reporters in Jakarta.
In Australia, Stevens said in today’s statement that inflation is likely to be consistent with the central bank’s target in 2012 and 2013. He also said that “financing conditions have become much more difficult, especially in Europe.”
ADB Forecasts Cut
Australian Treasurer Wayne Swan, speaking at a news conference, urged the nation’s lenders to pass on the rate cut in full. Australia’s four largest banks -- Commonwealth Bank of Australia, Westpac, National Australia Bank Ltd. and Australia & New Zealand Banking Group Ltd. -- said they are reviewing their interest rates after the RBA’s announcement.
Emerging East Asian economies may grow 7.2 percent next year after expanding 7.5 percent in 2011, the Asian Development Bank said in a report today. The estimates are lower than the lender’s September prediction for 7.6 percent growth this year and 7.5 percent in 2012, it said.
The 2012 forecast is the “best case” scenario, Iwan Azis, head of the office of regional economic integration at the ADB, said in an interview with Bloomberg Television in Hong Kong today. Recessions in the U.S. and Europe may cut emerging East Asia’s growth rate to about 5.4 percent in 2012, he said.
“With the euro zone’s sovereign debt crisis unfolding and risks of faltering global recovery rising, macroeconomic policy must remain cautious and prudent,” the ADB said. “The lingering eurozone debt crisis could boost risk aversion among investors, with rapid swings in risk appetite boosting capital flow volatility beyond the spurts and stops seen in the third quarter this year.”
European Union leaders will hold a summit in Brussels on Dec. 9 as they take another run at fixing the debt crisis after the failure of their fourth rescue blueprint sparked intensified concern the 17-nation euro area was on the brink of unraveling.
“There’ll be huge concerns about whether Europe’s bailout plan is going to avoid going into recession,” Andrew Sullivan, a principal sales trader at Piper Jaffray Asia Securities Ltd. in Hong Kong, said in an interview with Bloomberg Television today. “Asia, which is quite well positioned at the moment, just wants to try and keep the momentum going.”