Fed rate moves could spell end to Asian easing

Thu Mar 16, 2017 1:12pm EDT
 
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By Vidya Ranganathan

SINGAPORE (Reuters) - The long cycle of falling interest rates in Asia could be over after the U.S. Federal Reserve's third rate rise in 15 months was followed quickly by monetary tightening in the world's second-biggest economy, China.

The Fed's widely anticipated rise of 25 basis points on Wednesday was also only its third since the global financial crisis, having reined in earlier temptations to raise rates out of concern for the impact on fragile emerging economies that still needed looser monetary conditions.

But the Fed signaled again that such reticence is over, repeating its projections for at least two more rate rises this year as the U.S. economy strengthens. (For a graphic on Fed's target rate and future projections click tmsnrt.rs/1PbXyzs)

"At the very least, the Fed's desire to step up the pace of policy normalization has changed the conversation at many central banks globally," said Sean Callow, an economist with Westpac in Sydney.

"Further monetary easing is now largely seen as only if needed to 'break the glass', not a plausible baseline."

The People's Bank of China promptly raised the rates on the short-term funding operations it conducts for the country's banks for a third time this year on Thursday.

The Fed's move would otherwise make it harder for China to stop its currency weakening and arrest a persistent outflow of capital. China also wants to cool a run-up in debt and the risk of a property bubble.

The Bank of Japan (BOJ) announced the verdict of its regular policy meeting on Thursday, opting to stand pat with its 0.1 percent short-term interest rate target and a loose commitment to keep buying bonds, though core inflation is far below its ambitious 2 percent target. (For a graphic on Asian central bank policy rates click tmsnrt.rs/2mv7VVh)   Continued...

 
FILE PHOTO: A police officer keeps watch in front of the U.S. Federal Reserve building in Washington, DC, U.S., October 12, 2016. REUTERS/Kevin Lamarque//Files