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Asia's central banks face dilemma

Wednesday, August 10, 2011 - 02:21

Aug. 11 - South Korea's central bank leaves interest rates on hold, in a probable precedent for Asian policymakers forced to respond to a looming global economic slump. Arnold Gay reports.

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South Korea's central bank left interest rates on hold Thursday (Aug 11), in a probable precedent for Asian policymakers forced to respond to a looming global economic slump. After consistently catching the market off guard, Bank of Korea (BoK) governor Kim Choong-Soo acted as expected, keeping rates at 3.25 percent. But Kim refutes any suggestion of a change in the central bank's goal of policy normalisation (SOUNDBITE) (Korean) BANK OF KOREA GOVERNOR KIM CHOONG-SOO SAYING: "There's no change in principle in our position of seeking a normalization of policy. But we will pursue normalization while closely taking into account the changing situation overseas." The central banker is also optimistic about the health of the U.S. economy. (SOUNDBITE) (Korean) BANK OF KOREA GOVERNOR KIM CHOONG-SOO SAYING: "I don't think the U.S. economy will fall into a double-dip (recession). I can't provide a percentage, but the chances are very low." Not everyone shares Kim's optimism, as the policy terrain in Asia's high-growth economies is now extremely tricky, after the U.S. Federal Reserve pledged to keep its policy rates near zero till 2013. Together with Europe's on-going debt crisis, they raise questions about overall growth. At home, Asia's policymakers have to contend with high and still rising core inflation, tight capacity and labour markets. Economists say the key worry is that Asia's central banks will ease on monetary tightening now, only to find the remnants of still strong price pressures showing up in uncomfortable ways in their economies. Indonesia's central bank also held rates earlier this week, while the Philippines has hinted at some breathing room on monetary policy. Other Asian policymakers will find themselves facing tricky decisions ahead. The Reserve Bank of Australia must confront high underlying inflationary pressures, alongside weakness in sections of its economy. China's inflation is still at a 3-year high, a huge dilemma for authorities who have to manage growth expectations, but also nervous investors who keep a very close watch on the world's last major growth engine. Arnold Gay, Reuters.

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Asia's central banks face dilemma

Wednesday, August 10, 2011 - 02:21