|
Economy
|
2000-03-20 16:54:00-05
|
Asia comfortable with anticipated Fed hike
|
|
US Federal Reserve Board expected to raise interest rates, Asia okay for now but what of the future
|
In the early morning hours of Wednesday in most Asian countries, the Unites States Federal Reserve Board, chaired by Alan Greenspan, is expected to raise US interest rates by 25 basis points. What will be the impact of this on Asia's foreign exchange markets and the economies in general? Observers throughout the region indicate that there will be no major earthquake throughout the region, even if the Fed follows up with another 25 basis point rise in May. Regional currencies are all flush with current account surpluses. Consumer demand is moderate and a fair amount of excess capacity is controlling inflation. With the exception of Hong Kong, where the territory's exchange rate is linked to mirror US rate increases, rates in other Asian countries are not likely to rise in the near term. Raising domestic interest rates would hurt the export sectors of Asian economies and right now, exports are driving the rebound of Asian economies. However, if the adjustment affects local currencies by depreciating them, then this can only stimulate increased exports. Asian currencies that are seen to be most affected by this are the Philippine peso, Indonesian rupiah and the Thai baht. Even this effect is likely to be short-term. The problem with increasing US interest rates appears to be long term. If interest rates continue to rise in the US throughout the rest of this year, say an increase of as much as 100 basis points, they will approach the same level that strained Asian economies in the 1997-98 period. When the US economy peaks as it is supposed to do later this year, that will concurrently signal that Asian exports will have peaked also. However, this scenario is much more acceptable than a "hard landing" for the US economy. The last episode of the latter was in 1994-95, when the Fed pushed up interest rates seven consecutive times. An equivalent amount of tightening by the Fed this year would result in a US interest rate of 9.5% by the end of 2000.
|
