Asian central banks resolve to wait
Central banks around Asia left their monetary policies unchanged, in line with market expectations, as economic conditions remain steady despite weakness in key export markets such as Europe and the US and slowing growth in China.
The Bank of Japan, the Bank of Korea and Bank Indonesia Thursday joined the Federal Reserve, the European Central Bank and the Reserve Bank of Australia, which earlier held off from additional easing measures at their latest policy-setting meetings.
The BOJ’s policy board voted unanimously to maintain the target of its asset-purchase programme – the central bank’s main tool for monetary easing, as interest rates are near zero – at JPY 70 trillion ($892 billion), given the absence of any recent sharp fluctuations in the yen and a domestic economy that remains on a recovery track. Speaking at a later news conference, BOJ Gov. Masaaki Shirakawa provided no hints on when the bank might act, only reiterating that it is committed to reaching the JPY 70 trillion target by next June.
The two-day meeting was the first since Takahide Kiuchi and Takehiro Sato – both former private-sector economists who have previously advocated further easing – were appointed late last month, bringing the board back to its full contingent of nine. But the two didn’t propose any additional easing steps at the meeting.
Shirakawa said that their addition led to “active and fruitful debate” and described the pair as presenting “well-balanced views.”
Some investors expect new easing measures over the next few months, mostly likely the removal of the minimum bidding yield for longer-term government debt. That would allow prices to rise, making financial firms that hold the debt more likely to sell – and helping the central bank meet its asset-purchase target.
But Shirakawa brushed off that idea Thursday, saying the BOJ is having no problem meeting its target. As of the end of July, it had purchased JPY 55 trillion in Japanese government bonds, corporate bonds and other assets as of the end of July.
Political pressure on the BOJ to act also appears to have grown less intense as lawmakers wrangle over a contentious tax package.
“Politicians have been busy with the political situation and they have no room to pay close attention to economic policies, including those from the BOJ,” said Barclays Securities Japan Chief Economist Kyohei Morita.
The BOJ maintained its assessment of the domestic economy, saying it has “started picking up moderately, as domestic demand remains firm mainly supported by reconstruction demand.” But it softened its view of exports and output, key engines for Japan’s recovery. After saying last month that exports showed signs of pick-up and production had started gaining moderately with some fluctuations, it said Thursday that “the pick-up in exports has moderated and recent reading of production has been relatively weak.”
Looking ahead, the BOJ didn’t lower its guard against risk factors such as the European financial crisis or the outlook for the US and emerging economies. “There remains a high degree of uncertainty about the global economy,” it said.
That, coupled with the prospect of a tailing-off in reconstruction demand later this year, has analysts expecting easing steps in September, if the US Federal Reserve loosens monetary policy, or October, when the BOJ will release its semiannual forecasts on the economy and prices. The board also voted unanimously to keep the BOJ’s policy rate, the unsecured overnight call loan rate, in a 0.0 percent-0.1 percent range.
Meanwhile, the Bank of Korea board voted unanimously to keep its benchmark interest rate steady at 3 percent, following a surprise 0.25-percentage-point cut last month, and offered a less pessimistic economic outlook, suggesting a measured approach to further monetary easing the rest of the year.
In its policy statement, the central bank continued to flag risk to the global economy and its negative impact on Korea, but toned down its assessment of the current situation. The trend of economic growth has slowed, it said, owing to lackluster exports and domestic demand. Last month, it said the economy has “weakened more than originally anticipated.”
As to future rate decisions, BOK Gov. Kim Choong-soo said only that the bank would take “the most appropriate action in line with changing conditions.” The 14 analysts polled by Dow Jones Newswires after the rate decision all expect a cut either next month or in October.
Bank Indonesia, able to keep focusing on curbing inflation and stabilising the rupiah thanks to second-quarter economic growth of 6.4 percent, left its overnight benchmark rate at 5.75 percent and indicated its intention to keep it unchanged for some time.
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Category: FinanceAsia
