Fri, Oct 10, 2008 page12

• Interest rate cuts not sufficient: Roach

  PLAN OF ACTION The Morgan Stanley Asia chairman urged finance ministers of top economies to draw up fiscal measures at the G7, IMF and World Bank meetings

  • By Joyce Huang And Kevin Chen / STAFF REPORTERS
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  The rare coordinated rate cuts on Wednesday by the world’s major central banks, as well as Taiwan’s, was an important step in the right direction, but not enough, Morgan Stanley Asia chairman Stephen Roach said yesterday.

  “I would have preferred to have seen rate cuts of twice the magnitude that were announced in the coordinated actions,” Roach said in a written statement to the Taipei Times.

  Roach’s remark came after central banks in Taiwan, Hong Kong and South Korea yesterday announced rate cuts, in a concerted action to stem the global financial crisis.

  As authorities worldwide hold the key to curbing the global financial crisis, Roach said, “it is critical for [both monetary and fiscal] policy [to] err on the side of overkill — not underkill.”

  An overkill policy would provide “a critical psychological boost for financial markets and economies that have been increasingly frozen by mistrust and fear,” he said.

  Roach urged finance ministers and secretaries of the world’s major economies to come up with coordinated fiscal action — including commitments to recapitalize the global banking system and public-sector support to mortgage holders with negative home equity positions — at the G7, IMF and World Bank meetings in Washington this weekend.

  “It would unclog the clogged arteries in credit markets,” Roach said.

  The Morgan Stanley economist-turned-executive lauded the quick response by Asian countries, China in particular, to a mounting external shock.

  “Externally dependent developing Asia can hardly expect to emerge unscathed in the face of a major external shock,” Roach said, adding that US and Europe-bound exports rose to a record 47 percent of the region’s GDP last year and grew 10 percent over the past decade.

  Separately, Moody’s said the unprecedented coordinated rate cuts in some Asia-Pacific countries indicated that policymakers in the region were keen to ease monetary policy in response to the global credit squeeze, while boosting their slowing economies.

  “A few months ago countries in the Asia-Pacific region were anxious about inflation, but easing CPI [consumer price index] figures in a number of countries have allowed looser monetary policy in some countries,” Tine Olsen, a Sydney-based economist at Moody’s Economy.com, wrote in a note released yesterday.

  But not all of the economies in this region will make the same move in response to the financial crisis, with some of them still struggling with inflation, Olsen said.

  Even as regional policymakers face the global credit squeeze and the prospect of slowing economic growth, “it is expected that they [regional policymakers] will not en masse follow the North American and European central banks in cutting rates further,” Olsen wrote.

  Sherman Chan (陳穎嘉), another Sydney-based Moody’s economist, said the rate cuts would only temporarily help ease market worries about the global credit crisis.

  She said it would take time for the rate cuts to improve economic fundamentals and the financial market situation.

  “A sharp rebound in market conditions is highly unlikely — improvement will come only at a slow pace,” she wrote in a separate report released yesterday.
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