Asia policymakers spared Fed jolt, look to support shaky economies

Thu Dec 17, 2015 7:09am EST
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By Nicholas Owen

JAKARTA (Reuters) - Asian policymakers on Thursday applauded a historic turn in U.S. monetary policy, but analysts warned the region's economies face vulnerabilities, with Taiwan cutting interest rates, although markets took the Federal Reserve rate hike in their stride.

The prospect of the first hike in U.S. rates in almost a decade had kept emerging markets on edge in the weeks before the decision, amid fears investors would redirect capital to higher-yielding U.S. debt in a fresh blow to their shaky economies.

However, an initial rally smoothed the brows of Asian central bankers, who were the first to respond to the hike as U.S. policymakers sought to end an era of ultra-low rates that followed the global financial crisis.

"The Fed's action brings an end to the lift-off uncertainty," said Amando Tetangco, the governor of the Philippine central bank, which left interest rates on hold at a monetary policy meeting on Thursday.

Taiwan's central bank unexpectedly cut its policy rate by 12.5 basis points, suggesting that worries about the region's sluggish growth, not capital flight, are at the front of policymakers' minds.

The relief among policymakers, and investors, comes as the global economy navigates some rough terrain, with many export-reliant economies hit by cooling growth in China and deflationary pressures rising amid a collapse in commodities.

Add to that mix pedestrian growth in Japan and the euro zone, and it isn't hard to see why many investors were nervous about the prospects of rising borrowing costs in the United States.

Indeed, the more composed initial markets reaction was aided by the fact the Fed had clearly flagged the move in advance, and also said the pace of tightening would be gradual - an important signal for many asset markets adjusting to less stimulus after years of flush Fed liquidity.   Continued...

South Korean won, Chinese yuan and Japanese yen notes are seen on U.S. 100 dollar notes in this picture illustration taken in Seoul, South Korea, December 15, 2015.  REUTERS/Kim Hong-Ji