Rate cut pressure in Asia seen in Indonesia as exports slacken

Once again, Asian central banks face the burden of supporting economic growth.

The collapse in Asian exports that began last year is spilling into 2016 with China and Indonesia on Monday reporting shipments fell in January. South Korea’s overseas sales shrank the most since 2009 last month and Thailand’s central bank forecast exports would remain flat in 2016 after contracting for three straight years.

The good news: Sliding oil prices are helping ease inflation, giving officials more firepower to bolster domestic demand. Indonesia, a net oil importer, will probably cut interest rates for a second consecutive month this week, according to a Bloomberg survey, while speculation is mounting that central banks from South Korea to Thailand may follow later this year.

“The angst in financial markets and fears of slower global growth that’s hurting exports argue for looser monetary policy,” Edward Teather, a senior economist at UBS AG in Singapore, said by phone. “Underlying inflation will remain subdued and central banks can keep policy looser longer.”

Central banks are overlooking the threat of weaker currencies as they seek to support economic growth, according to Credit Suisse Group AG. All Asian currencies except the yen have fallen against the US dollar in the past 12 months, led by Malaysia’s ringgit and South Korean’s won.

China, India and South Korea will probably ease monetary policy this year, according to forecasts from UBS and Australia & New Zealand Banking Group Ltd. Credit Suisse predicts rate cuts in those three countries as well as Thailand and Taiwan.

A worsening growth outlook and falling oil prices may also prompt the Monetary Authority of Singapore to ease policy in April, according to analysts at Barclays Plc. A government report on Wednesday showed Singapore non- oil exports fell 9.9 percent in January from a year ago, more than the median estimate of a 7.6 percent drop in a Bloomberg News survey.

Indonesia is a prime example of the rising pressure Asian policy mak- ers face as growth risks increase. Even before the selloff in global equities worsened, the World Bank in January had forecast slightly slower growth in East Asia and the Pacific this year and next.

Bank Indonesia will lower its reference rate to 7 percent from 7.25 percent Thursday, according to 17 of 28 economists surveyed by Bloomberg, with the rest forecasting no change. Policy makers cut the main interest rate for the first time in 11 months in January, while the government is planning to boost public spending to support an economy that expanded last year at the slowest pace since the financial crisis in 2009.

Inflation in Indonesia eased to 4.1 percent in January from 6.96 percent recorded a year earlier, mirroring a similar trend across Asia.

Financial conditions in Asia, excluding Japan, have tightened in the past 12 months, according to the Bloomberg Financial Conditions Index, which tracks the overall level of stress in money, bond, and equity markets to help assess the availability and cost of credit.