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Asean’s monetary policy responses in 2015

AS the year comes to an end, economists covering the Asian emerging markets are starting to release their forecasts on growth together with the issues and challenges that lie ahead.

For Asean, the possibility of US policy rate tightening, China growth trajectory and falling commodity prices are some of the factors that will determine the direction their central banks will take to support their economies.

CIMB Research regional economist Julia Goh anticipates diverse monetary policy actions in the region in view of the varied growth performance and domestic risks. She says in a report on the Asean 6 of Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam that while the region growth prospects remain intact, there is cause to be concern over the next few months of volatile capital outflows amid a sharp tightening of global financial liquidity.

oil prices help to soften the inflation outlook but diverse monetary policy action is to be expected in view of the varied growth
wholesale oakleys performance of the Asean economies, Goh says.

These policy moves will have an impact on capital flows in the region to a greater or lesser extent, especially the decision to start normalising US interest rates and Asean central bankers will have to balance this consideration with domestic issues. This will be the elephant in the room, with economists expecting the first hike to happen from mid 2015.

China, which has not cut benchmark interest rates since 2012, decided to lower the lending and borrowing rates on Nov 21. On that same day, European Central Bank president Mario Draghi says monetary easing could be used to boost inflation in the eurozone should measures including the purchase of asset backed securities started in late November fail to revive the economy.

Furthermore, Japan, which is now in a technical recession, has not only delayed
oakley sunglasses replica another consumption tax hike but is mulling over further monetary expansion.

Morgan Stanley Research analysts expect further monetary easing among Asean major trade partners, with China and South Korea
fake oakleys to cut rates by 50 and 25 basis points respectively to arrest real rates (due to falling inflation) next year while India may cut up to 50 basis points by the second quarter as inflation decelerates.

On the other hand, among Asean economies, they expect the Philippines to hike by 25 and Thailand by 50 basis points in the first and fourth quarters respectively.

Goh points out that the Philippines has more scope to raise rates gradually because of favourable domestic demand and growth outlook coupled with negative real rates, rising financial sector risks and inflation at the upper end of its central bank target range.

However, she feels there is a possibility of a rate cut in Thailand next year after the Bank of Thailand cut 25 basis points this past March to support growth.

thoughts were for the Bank of Thailand to keep rates on hold in the first half of 2015. However, the Bank of Thailand has recently hinted at the possibility of rate cuts if fiscal stimulus fails to come through, Goh says.

She says the Thai central bank will be compelled to ease rates should the US$11.2bil plan to support the region second largest economy, approved in October, be delayed. The Thai economy has slowed on a combination of political unrest earlier in the
fake oakleys cheap year and a drop in exports while lower inflation and ample excess
cheap oakley sunglasses capacity will allow the central bank room to lower rates.

Where Vietnam is concerned, Goh says the State Bank of Vietnam has more room to support economic growth given that headline inflation is expected to remain rangebound. The Vietnamese central bank cut rates by 50 basis points in March and since then has been tweaking its other interest rates such as the deposit cap rates in March and recently in the hope of spurring lending.

Citigroup Inc Hong Kong based chief Asia Pacific economist Johanna Chua says there is room for monetary policy to respond with interest rate cuts as financial stability considerations are superceded by low inflation worries. Among Asean countries, she says Thailand has room to ease rates although household debt continues to edge higher. Chua
fake oakley sunglasses cheap says lending to households has slowed with auto loans contracting sharply, thus Thai policymakers should be less reluctant to cut.

In the case of Indonesia and Malaysia, there is very low risks of deflation as both countries are going through cost normalisation due to subsidy cuts.

With the fall in global crude oil prices as well as that of other commodities such as crude palm oil, Citigroup chief emerging markets economist David Lubin says commodity exporting emerging economies with current account deficits are likely to remain in the spotlight. He says the distinction within emerging markets last year was that between countries with current account deficits versus those with surpluses in which countries with deficits were more exposed. happened in 2014 is that another distinction has become relevant that between commodity
cheap replica oakleys exporting emerging markets and manufactured exporting emerging markets, Lubin says, adding that this distinction will remain relevant in 2015.

In this case, manufacturing economies with surpluses
cheap oakley sunglasses wholesale will be least likely to suffer capital outflows or macroeconomic disruption compared to commodity exporters with deficits.

general we think that commodity exporting economies regardless of whether they are running current account surpluses or deficits will have to go through a potentially painful adjustment process. But the true vulnerability of emerging markets with external financing needs in 2015 will depend on the outlook for capital flows, and here the question is: what impact will a rising US policy rate have on capital flows to emerging markets?Articles Connexes:

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