Asia’s central banks to watch, wait as US lifts interest rates

SINGAPORE - In a sharp departure from 2004-06, ANZ Bank believes most Asian central banks are unlikely to respond to the current tightening cycle in the US. It says growth conditions in much of the region remain lacklustre, necessitating accommodative monetary conditions.

“How well Asian currencies can cope with these de-synchronised monetary cycles will to a large extent depend on the external metrics of each economy,” ANZ says. “Accordingly, we examine the external reserve adequacy of Asian economies using the IMF’s methodology.
“We find that compared to 2004, reserve adequacy has deteriorated in China, South Korea, India, and Malaysia - but has improved for the rest.
“Our findings are consistent with our view for higher short term rates in China and high risks to ringgit stability.
“India’s reserve adequacy has deteriorated mainly because of a build-up in shor- term external debt and foreign portfolio capital. However, we believe that euphoria around reforms under a strengthened Modi Administration has reduced risks of large portfolio outflows.” www.live.anz.com (ATI).