South Korea and Indonesia held off from raising borrowing costs yesterday amid mounting risks that the global recovery will stall even as inflation may accelerate.
The Bank of Korea (BOK) held the benchmark seven-day repurchase rate at 3.25 percent, while Indonesia’s central bank left its benchmark interest rate unchanged at 6.75 percent, they said in statements from Seoul and Jakarta. The central banks of Malaysia and the Philippines were expected to also keep their benchmark rates unchanged when they met later yesterday, according to two Bloomberg News surveys of economists.
Europe’s debt crisis and a faltering US recovery are clouding the outlook for exports in countries from Indonesia to South Korea. Australia yesterday reported employers unexpectedly cut jobs, underscoring the pressure on Reserve Bank of Australia Governor Glenn Stevens to pause on raising interest rates, while data in Japan showed machinery orders fell the most in 10 months.
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“The backdrop of European debt concerns and weaker external growth has likely brought forward the end of the Asian rate tightening cycle,” said Leong Wai Ho (梁偉豪), a senior regional economist at Barclays Capital in Singapore.
World Bank president Robert Zoellick said earlier this week the world was “moving into a -dangerous period” as stocks extended a slump that wiped US$6.6 trillion off global equity values in the three months that ended on Monday. Inflation may limit the scope for stimulus in Asia as expansions slow from China to Malaysia.
Recent economic reports suggest that while overseas demand for South Korean goods is holding up, corporate executives’ sentiment is worsening as the global economic outlook dims.
Bank of Korea Governor Kim Choong-soo said the central bank may not be able to resume raising interest rates until “external” factors such as Europe’s debt crisis look to be under control.
“The external situation is such that we see downside risks to our economy as being larger than before,” he told reporters after the policy decision. “We can’t move interest rates as long as external conditions are unstable.”
Kim also said yesterday’s decision was not unanimous, without elaborating. An interest-rate cut was not discussed, he said.
“The BOK will keep the policy rate on hold until the end of 2011 because of lingering downside risks to growth,” SC First Bank Korea economist Oh Suk-tae said before yesterday’s monetary policy announcement. “But, it’s expected to resume its cycle of rate hikes in 2012, barring a double-dip recession in developed economies.”
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