Coronavirus outbreak

Asian central banks face calls to cut interest rates

As coronavirus crisis spirals, economists see higher risk that Monetary Authority of Singapore will ease policy in April

A man wearing a mask walks past the headquarters of the People's Bank of China, the central bank, in Beijing, China. PHOTO: REUTERS

HONG KONG • Central banks in Asia face increasing calls to cut interest rates as they jump into action against a spiralling coronavirus crisis that is hammering tourism, travel and confidence across the region.

The People's Bank of China trimmed some interest rates on Monday and injected massive liquidity into the financial system to shore up slumping markets.

Indonesia's central bank said it was taking "bold" steps to bolster the nation's currency and bonds.

In Singapore, which has confirmed 24 cases of coronavirus, the authorities are bracing themselves for an economic hit that may be worse than the severe acute respiratory syndrome outbreak in 2003.

The Government has halted travel from China, where about 20 per cent of the city-state's international visitors come from.

The Feb 18 Budget will likely provide support measures for industries such as tourism and transport, and economists - including from JPMorgan Chase & Co and Citigroup - see a higher risk that the Monetary Authority of Singapore will ease policy in April.

The rest of Asia - set to see the worst spillovers from the virus due to its dependence on Chinese demand and tourists - boasts a handful of central banks that have space to ease monetary policy in a world of rock-bottom interest rates.

Attention first swung to Australia, where the central bank kept interest rates unchanged.

Next up is Thailand, where there are growing calls for a move today, but no consensus estimate so far that a cut is coming.

In contrast, a reduction is expected tomorrow in the Philippines, which has reported the first death from the coronavirus outside China.

India - which on the weekend announced a budget that underwhelmed those hoping for more stimulus - also sets policy tomorrow. A recent spike in inflation is expected to keep the central bank sidelined, but some economists think it will have to act at coming meetings to spur a faltering economy.

Growth risks are accelerating as China enforces strict travel curbs and airlines around the world suspend service to the mainland.

Bloomberg Economics estimates that even if the virus outbreak were severe but short-lived, China's first-quarter gross domestic product growth would hit a record low 4.5 per cent. UBS Group's China economist Tao Wang predicts a slump to 3.8 per cent.

Ms Priyanka Kishore, head of India and South-east Asia research at Oxford Economics in Singapore, said: "The downside risks to growth have increased substantially in the short term, especially for the more tourism-oriented countries like Thailand."


Even before the virus spread, manufacturing gauges signalled a shaky start to the year as the United States-China trade agreement failed to boost sentiment.

South Korea's Purchasing Managers' Index - a key barometer of global demand - fell to 49.8 last month from 50.1 in December.

In Thailand, restrictions on Chinese travel have hammered the tourism industry, which makes up about one-fifth of the economy. Growth was already taking a hit from drought and government spending delays, with the central bank last week signalling it may cut its 2.8 per cent forecast for economic growth this year.

"The central bank needs to do something to help shore up confidence now," said chief economist Burin Adulwattana at Bangkok Bank.

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"We used to think the revenue stream from tourism will help drive the economy this year while other engines are weak. Now that engine is gone. One cut may not be enough this year depending on the severity of the pandemic."

Bank Indonesia, which cut interest rates four times last year, stepped up intervention in the bond and currency markets on Monday to stem losses in the rupiah. Deputy governor Dody Budi Waluyo said the bank is open to further policy action as it assesses the impact of the virus outbreak, and "future utilisation of easing space will be carried out at the right timing".

Chief economist David Sumual of Bank Central Asia in Jakarta said that if the situation worsens, "the government may opt to stimulate the economy via a more aggressive fiscal policy, since doubts remain over the efficacy of monetary easing amid tepid loan demand".


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A version of this article appeared in the print edition of The Straits Times on February 05, 2020, with the headline Asian central banks face calls to cut interest rates. Subscribe