ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronEye IconIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailPositive ArrowIcon PrintTitle ChevronIcon Twitter
Economy

Asian central banks pressured to follow US rate hikes

Move to defend currencies would be burden on companies and households

Reserve Bank of India Gov. Urjit Patel. His central bank raised rates for the first time since 2014 in June.   © Reuters

SINGAPORE/HONG KONG -- The U.S. Federal Reserve's plan for accelerated rate hikes will likely force central banks across Asia to consider responses as widening interest rate gaps exacerbate capital flight.

The Fed on Wednesday raised its benchmark rate 25 basis points and signaled two more increases are on the way this year amid a strong U.S. economy.

This stepped-up pace of monetary tightening put Asia on edge, sending stocks lower in Hong Kong, Singapore, Malaysia and elsewhere in the region.

Prior to Wednesday's decision, the prospect of U.S. monetary tightening had already sparked a rash of rate hikes in Asia. Indonesia's central bank raised rates twice in May, to 4.75% from 4.25%, fearing a slow depreciation in its currency would accelerate. The Philippines' central bank followed with a quarter-point rise of its own, for similar reasons. On June 6, the Reserve Bank of India raised rates for the first time since 2014.

If the Federal Reserve's hikes do in fact pick up pace, central banks in Asia will have no choice but to consider additional increases. The market is already rife with speculation that the Bank of Korea, which raised rates in November 2017 for its first hike in six years and five month, will act again as early as July.

The rise in policy rates is likely to lead to higher bank lending rates. In Hong Kong, major banks are believed to be getting ready to increase prime lending rates, which have remained flat since 2008.

The three-month Hong Kong Interbank Offered Rate, or Hibor, rose for seven consecutive trading days through Thursday, reaching its highest level since 2008.

Norman Chan, the head of the Hong Kong Monetary Authority, the city's central bank, urged consumers to pay attention to the risk of higher interest payments. Asian countries all face the prospect of rising policy rates pushing up lending rates, placing a heavier burden on companies and households.

The faster-than-expected pace of monetary policy normalization will inevitably have an impact on Asian markets. Countries and companies with high levels of debt could fall prey to speculators.

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this monthThis is your last free article this month

Stay ahead with our exclusives on Asia;
the most dynamic market in the world.

Stay ahead with our exclusives on Asia

Get trusted insights from experts within Asia itself.

Get trusted insights from experts
within Asia itself.

Try 1 month for $0.99

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this month

This is your last free article this month

Stay ahead with our exclusives on Asia; the most
dynamic market in the world
.

Get trusted insights from experts
within Asia itself.

Try 3 months for $9

Offer ends October 31st

Your trial period has expired

You need a subscription to...

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers and subscribe

Your full access to Nikkei Asia has expired

You need a subscription to:

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers
NAR on print phone, device, and tablet media

Nikkei Asian Review, now known as Nikkei Asia, will be the voice of the Asian Century.

Celebrate our next chapter
Free access for everyone - Sep. 30

Find out more