hurricanemaxi
Joined: 04 Nov 2011
Posts: 120
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 Posted: Tue Dec 06, 2011 7:44 am Post subject: Australia Rate Cut Shows EU’s Steps Insufficient |
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Australia executed its first back-to- back interest-rate cut since 2009 and the Asian Development Bank cited escalating risks to its growth outlook, signaling lack of confidence in the region that Europe’s leaders have done enough to stem the sovereign-debt crisis.
Reserve Bank of Australia Governor Glenn Stevens lowered the overnight cash-rate target by a quarter percentage point, to 4.25 percent, confounding the forecasts of 12 of 25 economists surveyed by Bloomberg News. Philippine and Indonesian officials in the past day have said their central banks are also prepared to reduce borrowing costs.
“Policy makers want to bring down the cost of borrowing, and in some countries pump liquidity in the system, to spur growth to the domestic channel,” said Sailesh K. Jha, head of Asia markets strategy at Skandinaviska Enskilda Banken AB in Singapore, and a former ADB official.
Stocks retreated from Tokyo to Sydney as investor concern over Europe deepened in the wake of Standard & Poor’s putting 15 European nations on watch for potential sovereign-rating downgrades. The ADB, the Manila-based development lender, said there are “much greater downside risks” to economies in East Asia, casting doubt over its “cautiously optimistic outlook.”
The MSCI Asia Pacific Index (MXAP) of equities fell 1.3 percent at 1:20 p.m. Tokyo time. Asian currencies also dropped as investors turned to the dollar as a haven, with the Indonesian rupiah sliding 0.6 percent. The Philippine peso was down 0.4 percent and Thailand’s baht 0.4 percent. The Australian dollar fell after the rate decision, and is 0.8 percent lower today.
Buying Opportunity
Jha recommended that investors buy Asian currencies such as the South Korean won, Singapore dollar and rupiah because the region’s relative economic strength will spur its exchange rates over a three-to-six month horizon.
A report today may show euro-region gross domestic product rose 1.4 percent in the third quarter from a year before, down from 1.6 percent growth in the second quarter and a 2.4 percent expansion in January to March, the median forecast in a Bloomberg News survey of economists shows.
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