Asian central banks cut rates to counter US crisis

Singapore: Asia's central banks have started to cut interest rates, judging they need to counter the effect of the US financial crisis on their export-dependent economies as inflation peaks.

Taiwan cut borrowing costs on September 25, joining China, Australia and New Zealand in easing the price of money this month. Inflation rates have slowed in Thailand and Sri Lanka, and policy makers in the Philippines, India and Indonesia forecast price gains will cool before the end of the year.

Lower borrowing costs may spur growth as the economies of the US, Europe and Japan weaken and the deepening credit crisis threatens to tip the world into a recession. Still, some analysts say the inflation fight isn't over and loose monetary policy or a surge in oil costs may spark another bout of higher prices.

"The bias may be shifting too quickly to growth and that is not wise," said Jan Lambregts, head of Asia research at Rabobank International in Hong Kong. "It's too early to declare victory over inflation."

The credit crisis led Lehman Brothers Holdings Inc. to file for bankruptcy and prompted the sale of Merrill Lynch & Co. to Bank of America Corp. this month. US regulators have seized at least nine lenders since July, the fastest pace in 15 years.

While the contagion from the turmoil isn't likely to infect Asia's banking systems, the credit crisis is hurting exports.

Fewer orders for made-in-Asia goods are cooling industrial production in China, Singapore and Taiwan among others.

Merrill Lynch this month cut its forecast for Asia's growth in 2008 and 2009. The region will expand 7.7 per cent this year, and ease further to 7.3 per cent in 2009. Both were reduced from previous predictions of 7.9 per cent growth.

Taiwan's central bank cut rates by 12.5 basis points to 3.5 per cent on September 25, saying the global financial crisis had heightened the risk of a slowdown.

The People's Bank of China reduced its one-year lending rate to 7.20 per cent from 7.47 per cent on September 15 and Australia's central bank lowered borrowing costs on September 2, its first reduction in seven years.

Some economists are concerned the interest-rates cuts will rekindle inflation. "Put the inflation genie back in the bottle now," said Asian Development Bank chief economist Ifzal Ali. Asia needs to "tighten monetary policy even if it requires a temporary sacrifice of growth."