Thursday, October 30, 2008

The Asian Response

  • 10 ASEAN nations planning for a crisis fund to tap from if they face severe liquidity crunch due to global financial crisis; Fund can also be used to purchase bad assets, recapitalize troubled financial institutions and private companies; ASEAN+3, ADB, IMF will contribute to the fund while World Bank has contributed $10bn; also include plans for stand-by liquidity facilities
  • In spite of limited exposure to US bank losses, risks from external funding crunch, higher borrowing costs, bank panics and deposit withdrawals are growing for banks and corporates in Korea, HK and Taiwan
  • Asian central banks had been injecting liquidity into banking system and cutting rates (discount/policy rate) and/or bank reserve requirements to ease liquidity squeeze and spike in short-term rates (swap, overnight, inter-bank rates and spreads) since Sep; Some banned short-selling, guaranteeing deposits, considering fiscal stimulus; following global central bank intervention, these rates have somewhat eased in recent days
  • Australia: $7.3bn stimulus for pensioners, middle and low-income groups, first-time home buyers; additional stimulus may follow; deposit guarantees; cut overnight cash rate to 6% from 7%, offering 6-mo/1-yr repos; Term Deposit lending facility, expanded types of collateral, loan maturity under bank lending facility as difference b/w inter-bank and overnight indexed swap rate surged; doubled swap agreement with Fed from $10bn to $20bn; banned short selling; to purchase $3.2 bn in residential-backed mortgage securities to help small lenders offer home loans
  • Japan: supplementary budget for fiscal stimulus; providing unlimited dollar funds to banks at a fixed rate against pooled collateral until Jan-09 under swap agreement with Fed; eased rates under lending facility, expanded range of bonds under repos, suspended program of selling bank shares; Injecting liquidity amid spike in Yen overnight LIBOR; banks' exposure to Lehman had led to decline in stock prices and short halt in trading on Sep 15
  • India: Raised cap and credit cost on external borrowing of firms; cut interest rate 100pbs to 8%; conducting 14 day Repos to help banks provide credit to MFs; allowed banks to lend to MFs against CDs; Allowed Savings bond holders to borrow from banks against govt paper; to infuse capital into commercial banks to raise CAR up to 12%; cut bank reserve ratio thrice in Oct from 9% to 6.5% (first time in 5 yrs); raised FII limit in corporate bonds; raised interest rate on non-resident deposits by 50bps following similar move in Sep; eased limits on banks to raise foreign capital, restrictions on FII equity investment; eased Liquidity Adjustment Facility; continues to sell FX reserves
  • HK: to use forex reserves to guarantee bank deposits, set up a fund for banks to access capital; Cut base rate by 150bps to 2% twice in Oct to contain jump in HIBOR; providing additional liquidity to banks via 3-mo repo window, expanded acceptable collateral
  • Korea: cut 7-day repo rate 75bps to 4.25% and lowered the base rate 75bps on loans to SMEs amid high commercial paper and loan refinancing costs, household debt; up to $100 bn to guarantee maturing foreign currency debt; to use forex reserves to inject $30 bn liquidity in won-dollar swap market after an initial $10bn; might buy govt bonds from the market to reduce USD shortage; temporary ban on short selling
  • Taiwan: Guaranteed bank deposits; Cut discount rate on 10-day loans to 3.25% on Oct 9 (second time in 2 weeks following first cut since 2003), cut reserve ratio (first time in 8 yrs) and ratio for passbook deposits; injecting liquidity into foreign-currency interbank market; lending via repos to insurance companies w/ extended maturity up to 180 days; banned short selling; instructed 4 major funds and state-owned banks to buy shares after stock market fell to 3-yr low on Sep 15
  • Indonesia: allowed commercial banks to use central bank debt and govt bonds as secondary reserves; extended FX Swap tenor to 1 month; passage of foreign currency via banks for firms; abolished limit of daily balance position; eased foreign currency min reserve req; Cut bank reserve ratio 1.58bps to 7.5%; exempted banks from mark-to-market rule, eased rules/cap for firms to buy back shares; Suspended trading on Oct 8/9 following 10% slide in stock market; banned short selling for Oct; injected over 3bn via 6-day repo; lowered overnight repo rate, adjusted rate of liquidity facility; might increase infrastructure spending, fiscal stimulus for exporting firms, households
  • New Zealand: overnight Cash Rate cut 100bps to 6.5%; introduced opt-in deposit guarantee scheme; accepting (longer term) bank paper in daily market operations, ABSs from local banks for swapping foreign cash into NZ dollars
  • China: Chinese banks reluctant to extend loans to foreign banks in the interbank market; reduced 1-yr lending rate (second time in 3 weeks, first since 2002) by 27bp to 6.93% and 10yr deposit rate to 3.87% and cut bank reserve requirements by 50bp to 17%; eliminated stamp duty on stock purchases with plans to buy shares in state-owned banks; to introduce short selling and margin trading to ease pressure on share prices
  • Singapore: guaranteed deposits; Injecting liquidity via market operations; prepared to provide further liquidity if necessary and also to individual banks amid spike in 1-mo and 3-mo SIBOR, BEA bank run, CDS also rising; but rates have eased somewhat following central bank measures
  • Malaysia: guaranteed deposits; Might inject liquidity, move interest rates if necessary; planning for an economic stabilization stimulus
  • Pakistan: declining capital inflows/outflows in inter-bank and open market causing currency depreciation; central bank injected $100-200 bn, raised limit on investment bonds and term finance certificates under banks' statutory requirement
  • Easing commodity prices, peaking of inflation, growing risks to exports, economic growth might also shift central banks' bias towards monetary easing; Taiwan, Pakistan, Vietnam had earlier intervened in stock market by narrowing trading band, introducing stabilization fund to contain volatility; India, S.Korea, Thailand, Philippines, Indonesian intervening in forex market to contain downward pressure on currency (led by capital outflows, decline in external balances)
Comments: Malaysia and Singapore are still the last to act. Hinting that their fundamentals are more solid than the rest. Safe to say that there is "no attack" on the currency so far. The difference is that Singapore was adamant in defending the strength of the Sing dollar - which could very well bite them in the back as their property side is headed for a substantive fall.

p/s photos: Haruna Yabuki


Ivan said...

I think Msia shall follow the market - cut rate 0.25 at least. . .

Maybe we will only act after Singapore act on it. As up to date, a lot of politician is still say msia are strong. . .aren't we?

solomon said...

At the end, interest rate might not be effective in overcoming this crisis.

Would it be better to revamp the accounting standards? The MTM rules had created the shortfall and panic among investors. If not how abt doing cross country currency swap or barter trade (without the USD)?

Most of us would agree that it is times for countries or corporate to clean up their balance sheets in this uncertainties, instead of borrowing cheaper funds in the low interest rate regime for investment. Stimulus plan should come later, perhaps DEC08 or 1Q09.

Liquidities is good, but excessive of it will cause inflation. Having saying that, without the incentive to borrow, the liquidities will just sit there and not circulating. What is the point then??

Wedding Gifts, Favours, Bells... said...

during this crisis, good to hedge ur mortgage loan against a fluctuating interest rate (SIBOR) or a fixed rate package...

see said...

Cut back our petrol price back to below RM2 lah that should help our pockets

Salvatore_Dali said...


have to use interest rates, but it should not be the only instrument, u must lower the cost of borrowing and speed up the velocity of money which ppl are intent on hoarding ... yr idea about mark to market rules needs to be revamped immediately, yes, new rules to be implemented immediately on long term holdings which are illiquid are hardly traded... remove MTM rules for them as that is what is holding back the "capital" element in balance sheet... every week also have to mark down... where got enough injection to cover the value write downs.


I would strongly favour a fixed rate loan but wait till rates get lower, we r in a deflationary phase even though there is a lot of liquidty being injected. I think INg has a fixed rate loan at 5.5%, I think if you can get at 4% or 4.5%, then lock it in because I see the next 5 years a high inflationary phase.


petrol small thing la, we really need to get used to less subsidy to mature economically.

Ivan said...


If inflation is high, shall BNM will increase the rate?

As we study before, inflation due the increase in money supply + power of purchase increase, hence BNM can implement the increase i/rate. . but this time not wo. . .

Purchasing power is not strong wo.. then , if raise the i/rate, the msian will face higher burden wo...


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