Asia economies reduce rates amid nCoV impact
BANGKOK: Central banks in the Philippines and Thailand have cut their benchmark interest rates as China’s neighbors seek ways to soften the impact of measures to contain a virus outbreak that has killed more than 560 people.
The Philippine central bank cut its main policy rate on Thursday by 0.25 percentage point to 3.75 percent on Thursday. That followed a rate cut by the Bank of Thailand a day earlier, to a new low of 1 percent from 1.25 percent.
“The board noted the spread of the 2019 novel coronavirus [acute respiratory disease (2019-nCoV ARD)] could have an adverse impact on economic activity and market sentiment in coming months,” Bangko Sentral ng Pilipinas Governor Benjamin Diokno, said in remarks livestreamed on Facebook (see story on B1).
Thailand’s Board of Investment also announced fresh measures to boost the economy, including increased corporate tax exemptions for both small businesses and large-scale projects. Thai authorities have taken various steps to ease conditions for businesses, including tax cuts, easing loan repayment terms and extending the deadline for filing personal income tax from March to June.
Many of China’s neighbors are reeling from plunging tourist arrivals and other adverse impacts from the outbreak that has spread from the central Chinese city of Wuhan to more than 20 countries.
The Bank of Thailand said the softer credit policy would help businesses and households cope as risks rise from mounting debt, severe drought and uncertainties brought on by the trade war between China and the United States.
Analysts are predicting that the Thai central bank will cut the benchmark rate by another 0.25 percentage point, perhaps as early as March.
The Monetary Authority of Singapore said Wednesday that it had “sufficient room” to ease the exchange rate “in line with the weakening of economic conditions as a result of the outbreak.”
About 10 percent of Thailand’s economy hinges on exports to China. The share of such exports is even higher for Vietnam, Taiwan, South Korea and Malaysia.
Exporters of major commodities like oil, coal and iron ore also are vulnerable to shocks from a further slowdown in China’s economy.
The trend toward easing credit began last year as relations between China and the US dipped to their worst in decades and is expected to continue.
Analysts at Fitch Solutions Macro Research said on Wednesday they estimated regional growth could slow to 4.0 percent from 4.3 percent in 2019 if the outbreak leads to a much slower rate of growth for China. Economists already are forecasting that China’s economy, the world’s second largest, will expand at about a 5-percent pace in 2020, down from 6.1 percent last year.
The Fitch report reckons that China accounts for more than two-thirds of growth for developing economies in Asia and for almost 80 percent of travel.
Further interest rate cuts are likely in store for the Philippines, said Alex Holmes of Capital Economics.
“The Philippines is likely to be more insulated from the economic fallout of the coronavirus than most other countries in the region,” he said. “But the disruption to the tourism sector and industry will still add to the headwinds the economy faces from slowing consumption growth, and weak exports.”
He said the Philippine economy would likely not attain the government’s target growth rate of 6.5 to 7.5 percent and might not even reach the 6.4 percent rate seen in the last quarter of 2019.