Thursday, December 13, 2007

Asian banks refrain from joining counterparts

Asian central banks on Thursday refrained from joining their North American and European counterparts in taking emergency action to boost market liquidity, underlining what economists dubbed a much healthier funding environment in the region.

The contrast in responses “absolutely confirms how different the situation is in Asia,” said Glenn Maguire, Asia chief economist at Societe Generale. “There are some funding strains in Australia, Korea and China but nothing significant enough to warrant any change [in the stance of central banks].”

“If anything, [Asian] liquidity conditions are excessively high,” said Paul Schulte, chief regional equity strategist at Lehman Brothers. “While the West was trafficking these credit products over the past five years, Asia was, thankfully, in rehab.”

The Bank of Japan took the lead among Asian central banks in expressing support for the US-led emergency steps to ease liquidity concerns, but said it had no plans at this time to take additional measures of its own. The BoJ has been supplying funds against pooled collateral since last year, allowing borrowers to access funds using a variety of collateral.

Most Asian stock markets fell on Thursday amid concerns that the US-led measures would be not be sufficient to avoid a further credit tightening that could cripple Asia’s leading export markets.

The Asian Development Bank also warned about the risks of more financial market volatility, reducing its forecast for growth in East Asia’s leading economies outside of Japan to 8 per cent from 8.5 per cent earlier this year.

“Despite limited spillover into emerging East Asia from the US subprime turmoil, there are several signs of financial vulnerability related to sharp gains in equity and real estate prices [within the region],” the ADB said.

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