ASIA: Less affected by US credit crunch
Updated
The Head of Australia's central bank says Asia is in good shape to cope with a future global economic slowdown. Reserve Bank Governor Glen Stevens says Asia and Australia are weathering the credit crunch sparked by the mortgage crisis in the United States reasonably well.
SNOWDON: Australia's economy is running a bit too strongly for the Reserve Bank governor's liking, but unlike a month ago, when Glen Stevens seemed inclined to raise interest rates, now he might not have to. The market might do the job for him.
Addressing a business group in Sydney, he noted that people taking out loans are having to pay higher interest rates anyway because of the global credit squeeze.
STEVENS: Hence it appears at least at this stage, that we may well observe a further tightening of financial conditions in the Australian economy over the months ahead.
Given the macro-economic situation of the Australian economy, at least to date, some additional restraint would perhaps not be unwelcome.
SNOWDON: Chief economist with NAB Capital, Rob Henderson, says that means Australia's interest rates are on hold for now.
HENDERSON: I think that he was telling us that the Reserve Bank is being very careful, it's being very cautious. They'll watch the outlook. There is some downside risk to the Australian economy, that it went into this very strong. So I think the clear message is rates are on hold until the dust settles on this issue.
SNOWDON: The interest rate cuts by the US Central Bank might be enough to ward off a recession if several more rate cuts follow. But the pain from the sub prime housing crisis in the US is spreading around the globe.
The latest bank to succumb, the fourth biggest mortgage lender in Britain, Northern Rock, needed the Central Bank there to guarantee deposits to prevent a full scale run on the bank by customers taking out their money.
Similar scenes are yet to happen in Australia and in Asia. Reserve Bank Governor Glen Stevens says Asian banks are in much better shape than a decade ago, and have less exposure to problem loans. But he warns a lack of transparency or full disclosure could precipitate a shock later or create enough uncertainty to have the same effect.
STEVENS: The problem hasn't been in most cases that the exposures are big. The problem has mainly been that not enough is known about whose got them and the sooner that information becomes available, the better.
SNOWDON: And with Asian economies still largely focused on exports, a US recession is going to have an impact.
STEVENS: The region could still be affected through the trade channel, and while it's true that intra-regional trade in Asia has grown a lot in the past decade, it's still the case that a lot of that activity is still the assembling of components which ultimately are aimed at delivering goods to countries outside the region.
So it appears from this analysis, the main risk to East Asia, lies mainly not in the area of direct financial contagion but more in the ordinary macro-economic impacts of potentially at least, a somewhat slower US and world economy.
SNOWDON: Glen Stevens was speaking to an Asia Society meeting on first anniversary of his appointment to the head of Australia's Central Bank. He also said that Asia needs to be given more recognition for its emerging importance in the international financial system. With that comes more responsibility, and he suggests Asia play an active part in international agencies like the International Monetary Fund and in setting responsible exchange rate policies.
In other reports just out, ratings agency Moodys, says on current information, Japan seems likely to ride out the credit storm, because its sophisticated financial transactions are different from the instruments causing problems in the US and Europe. And it emerges that Singapore is the fastest growing economy in Asia after China, with a big jump in June quarter GDP. That's boosted the official annual growth forecast to between 7 and 8 per cent, up from 5 to 7 per cent previously.
Presenter: Karon Snowdon
Speakers: Australia's Reserve Bank Governor, Glen Stevens
