Further interest rate cuts expected from the US Federal Reserve won't offer much help to Asian economies struggling to come to terms with the gloomy global environment, analysts said yesterday.
"I think the risk is that the interest rate cuts don't have much effect [in Asia]," said Rob Subbaraman, regional economist at Lehman Brothers in Tokyo.
After last week's devastating attacks on New York and Washington, the Fed is expected to cut rates aggressively to keep liquidity flowing in the financial markets and boost confidence.
Some economists were betting the Fed would ease as early as yesterday as US stocks resume trading for the first time since the Sept. 11 attacks that left thousands of people dead and Wall Street in tatters.
Certainly there was justification for more rate cuts even before the attacks.
"On a fundamental basis, all economists have now taken stock of what we've seen pre-Sept. 11 and, I think it is important to note, all of the signs were of the US tipping toward recession in the first place," David Fernandez, vice president at JP Morgan Chase, told Reuters Television.
JP Morgan is now forecasting the US economy will contract by one percent in the third quarter and 1.5 percent in the fourth. A further contraction in the first quarter of 2002 is quite possible.
US economic data released last week but compiled before the attacks showed the economy was still under severe pressure.
Industrial production fell for the eleventh straight month in August and a closely watched consumer sentiment survey taken in early September showed confidence fell to its lowest level in nearly eight years.
Retail sales rose a healthy 0.3 percent in August, helped by the US$38 billion in tax rebates mailed out starting in July. But few expect sales to stay so robust.
Consumer spending has been underpinning the US economy amid the economic slowdown and analysts fear the attacks and fears of further conflict will damage sentiment, pushing the country into recession.
Fernandez said he didn't believe the Fed was in a hurry to cut rates, but would ease the federal funds rate down to two percent by year end from 3.5 percent now.
The Fed has already cut interest rates seven times this year by a total of three percentage points.
Lehman Brothers' Subbaraman said his firm expects the Fed to cut rates by 50 basis points at its Oct. 2 policy meeting and possibly by another 25 basis points in November or December.
Subbaraman said Hong Kong would surely follow, while the cuts would provide further scope for easing in South Korea, Taiwan and the Philippines and possibly in Thailand and China.
Meanwhile in Japan, speculation is rife that the Bank of Japan will further loosen its already super easy policy when it holds its regular policy meeting on Thursday.
Whether the rate cuts actually help Asia's economies is more in doubt. The cuts could support fragile sentiment and improve liquidity but longer-term effects are likely to be muted.
"Interest rate cuts affect econ-omies mainly through bank lending and many of the countries in Asia still have very weak banking systems. So I think it is fair to say that the interest rate channel may not be as strong as it has been in the past," said Subbaraman.
Hong Kong is most affected by US interest rate policy due to its currency peg and because of the importance of interest rate sensitive real estate assets to the local economy. The US is also one of the territory's biggest export markets.
But even here, the impact is expected to be mild.
"Even if the reduction in rates helps people's mortgage burden, the fear of losing their jobs means that they won't spend more," said Daniel Chan, senior economist at Dao Heng Bank.
In Hong Kong, as in other Asian countries, the key in the short term will be how US share markets react when they re-open.
ROLLER-COASTER RIDE: More than five earthquakes ranging from magnitude 4.4 to 5.5 on the Richter scale shook eastern Taiwan in rapid succession yesterday afternoon Back-to-back weather fronts are forecast to hit Taiwan this week, resulting in rain across the nation in the coming days, the Central Weather Administration said yesterday, as it also warned residents in mountainous regions to be wary of landslides and rockfalls. As the first front approached, sporadic rainfall began in central and northern parts of Taiwan yesterday, the agency said, adding that rain is forecast to intensify in those regions today, while brief showers would also affect other parts of the nation. A second weather system is forecast to arrive on Thursday, bringing additional rain to the whole nation until Sunday, it
LANDSLIDES POSSIBLE: The agency advised the public to avoid visiting mountainous regions due to more expected aftershocks and rainfall from a series of weather fronts A series of earthquakes over the past few days were likely aftershocks of the April 3 earthquake in Hualien County, with further aftershocks to be expected for up to a year, the Central Weather Administration (CWA) said yesterday. Based on the nation’s experience after the quake on Sept. 21, 1999, more aftershocks are possible over the next six months to a year, the agency said. A total of 103 earthquakes of magnitude 4 on the local magnitude scale or higher hit Hualien County from 5:08pm on Monday to 10:27am yesterday, with 27 of them exceeding magnitude 5. They included two, of magnitude
CONDITIONAL: The PRC imposes secret requirements that the funding it provides cannot be spent in states with diplomatic relations with Taiwan, Emma Reilly said China has been bribing UN officials to obtain “special benefits” and to block funding from countries that have diplomatic ties with Taiwan, a former UN employee told the British House of Commons on Tuesday. At a House of Commons Foreign Affairs Committee hearing into “international relations within the multilateral system,” former Office of the UN High Commissioner for Human Rights (OHCHR) employee Emma Reilly said in a written statement that “Beijing paid bribes to the two successive Presidents of the [UN] General Assembly” during the two-year negotiation of the Sustainable Development Goals. Another way China exercises influence within the UN Secretariat is
Taiwan’s first drag queen to compete on the internationally acclaimed RuPaul’s Drag Race, Nymphia Wind (妮妃雅), was on Friday crowned the “Next Drag Superstar.” Dressed in a sparkling banana dress, Nymphia Wind swept onto the stage for the final, and stole the show. “Taiwan this is for you,” she said right after show host RuPaul announced her as the winner. “To those who feel like they don’t belong, just remember to live fearlessly and to live their truth,” she said on stage. One of the frontrunners for the past 15 episodes, the 28-year-old breezed through to the final after weeks of showcasing her unique