Asian central banks decisions failed to move financial markets

Saturday, April 24, 2010

Asian financial markets fluctuated this week affected by confidence in global markets, as Goldman Sachs fraud case had a strong negative effect on confidence. The European airspace shutdown at the beginning of this week pushed stocks down, but the positive earnings reported by U.S companies came to support equity markets.

This week witnessed a number of central banks rate decisions. Despite the fact that all decisions were inline with expectations, but they still might change the outlook for Asian economies this year and 2011.

The Reserve Bank of Australia’s minutes for the this month’s meeting when policy makers decided to raise interest rates by 25 basis points to 4.25%, said that inflationary pressures increased alongside accelerating growth. Inflationary pressures forced policy makers to raise borrowing costs for the fifth time in six meetings in order to control inflation.

Moreover, policy makers said the spike in the mining sector may push inflation higher, as it became the main reason behind raising interest rates towards their normal levels, referring to future steps for 2010.

As for the Reserve Bank of India, it raised the repurchase rate and the reverse repo rate, and asked lenders to increase their cash reserves, as the bank aims at taming inflation, especially that it’s accelerating at the fastest pace among the G 20.

The Indian central bank raised the repurchase rate by 25 basis points to 3.75%, and the reverse repo rate was raised to 5.25%; which was alongside markets expectations.

Accelerating inflation on the year in India was the main reason behind raising interest rates between banks and asking lenders to raise their reserves by 25 basis points to 6.00%; especially that the inflation rose in March to the highest since the end of 2008.

On the other hand, Sri Lanka's central bank kept rates unchanged at the lowest since November 2004 at 7.5% for the fifth straight meeting, as the bank is working to support economic recovery after the end of civil war that took 26 years. The bank also kept the reverse repo rate ay 9.75%.

Keeping interest rates at their low levels helped support the recovery from the recession, and helped the government win a second term in the parliamentary elections which took place this month; especially that the government is working to provide job opportunities after the end of the civil war.

Philippines central bank decided to keep interest rates at 4.00% for the seventh straight meeting, and the bank's decision was inline with analysts' forecasts. The bank raised its forecasts for inflation this year to an average of 5.1% compared with 4.65% that was previously forecasted, while the bank expects inflation to reach 3.7% compared with earlier forecasts of 3.45%