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increases in benchmark borrowing costs will be gradual in order not
to nip fragile economic recovery in the bud, analysts say.
Australia's surprise quarter-point hike in its key cash rate to 3.25
percent last week "crystallised the fact that the tide of monetary
policy" has switched course, said Matt Robinson, Sydney- based
economist at Moody's Economy.com. The move by Australia -- the first
major economy to boost borrowing costs since the global financial
crisis began -- "likely kicks off rate hikes across the region", but
monetary tightening will be gradual, Robinson said. Even though
Australia, its economy stoked by exports to supply China's keen
resource appetite, has been quick to start unwinding monetary
stimulus, most analysts believe the next rate rises in the region
will come only in 2010. Central bankers in emerging market giants
India and China and elsewhere in the region are keeping a wary watch
on indicators pointing to rebounding economic strength and resurgent
inflationary pressures. Low-cost loans have provided vital stimulus
and policymakers are fearful of choking nascent growth by hiking
rates too soon and too fast. "It's a tough decision at this juncture
to know how to unwind all the monetary stimulus -- when to time the
stimulus exit," said Dharmakirti Joshi, principal economist at
leading Indian ratings firm Crisil. Analysts had bet South Korea,
recovering from the global slowdown faster than many other nations
thanks in part to an export rebound, could be next to jack up rates.
Some had forecast the hike could come as early as next month. But late
last week South Korea's central bank opted to keep its benchmark rate
unchanged and said it needed more time to assess the economy's
underlying strength. The statement largely squelched talk that South
Korea could hike rates before the end of the year, analysts said. The
"less hawkish" tone of the South Korean central bank's comments
suggests there will only be a "gradual and moderate tightening in 2010
," said Goldman Sachs economist Goohoon Kwon. In India, tipped by
some analysts as another country likely to tighten monetary policy
sooner than others due to an inflation flare-up, the government has
argued raising rates too early could stall economic recovery. Reserve
Bank of India Governor Duvvuri Subbarao acknowledged the challenge
last week, saying the bank must manage "the trade-offs" between
buttressing growth by holding down borrowing costs and keeping a lid
on inflation. Most analysts are betting on rate hikes only in 2010
in India, where economic growth is forecast for this fiscal year at
6.3-6.5 percent, down from blistering annual nine percent rates
logged before the financial crisis. Much of India's inflation is
being fuelled by soaring food costs which can't be reduced by rate
rises, analysts say. "Much of the recovery in industrial output has
come from government stimulus and the economy must get to a situation
where it can propel itself," said Crisil's Joshi. China also looks
set to keep rates on hold until 2010 , many analysts say, even with
its economy targeted to grow by at least eight percent this year.
"Since inflation is not an immediate threat and the external outlook
remains precarious, we do not think consensus can form quickly to
allow an overall tightening of policy," UBS economist Wang Tao said
recently in a note. In the United States, China's largest export
market, unemployment is forecast to be near 10 percent in 2010 and
the US Federal Reserve has said rates will stay near zero for an
"extended period." Central banks of other major developed countries
are also expected to keep rates ultra low until their economies show
clear signs of healing. For the rest of the Asia-Pacific region, from
Taiwan and Singapore to Thailand and Indonesia, most analysts are
wagering the first rate hikes will be in 2010. The withdrawal of
monetary stimulus will be slow to ensure recovery remains on track,
especially with the US and many European economies yet to emerge from
recession and Japan, the biggest economy in Asia, still feeble.
"Raising rates may snap the green shoots. This is not a good moment
to do so," said Norman Yin, a banking professor at Taiwan's National
Chengchi University.
