Oil helps Asian central banks stray from Fed's shadow

Fri Mar 13, 2015 12:19am EDT
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By Vidya Ranganathan

SINGAPORE (Reuters) - Asian central banks are running their own race on monetary policy for the first time in decades, cutting interest rates with a breezy confidence that is absent from other big emerging markets, thanks largely to weak oil prices.

As recently as 2013, when the U.S. Federal Reserve hinted that it would start tapering its loose money policy, which would typically suck capital out of emerging markets and into dollar assets, Asian central banks rushed to raise rates to keep hold of that money.

But now, even with a U.S. rate rise looming, central banks in the region, including those in Singapore, China, India and Indonesia, have on eight occasions this year announced unexpected easing measures.

Thailand and South Korea joined in with surprise rate cuts this week, and most of the central banks, including China's, have also been either guiding or permitting their currencies to trade lower.

By contrast, many other emerging markets, such as Russia, Brazil, Mexico, Turkey and South Africa, have been constrained by high levels of debt, or tumbling currencies, high inflation or plummeting revenues from resources - plus the risk or reality of capital flight.

"It's incredible, and it is at complete odds with 2013, when we had the 'taper tantrum' and everybody in Asia was scrambling to hike rates," said Claudio Piron, co-head of currency and rates strategy at BofA Merrill Lynch in Singapore.

"What we are witnessing ... is a fundamental divergence with the monetary angle that the United States has played, and this is an unproven experiment."

Bank governors from Korea and the Philippines have gone on record saying they don't expect to fall back in sync when the Fed does start tightening.   Continued...

A Chinese national flag flutters in front of the headquarters of the People's Bank of China, China's central bank, in central Beijing, May 16, 2014.  REUTERS/Petar Kujundzic