Benign interest rates needed for proper recovery: UOB
By JOYCE HOOI
WHILE Asian economies remain relatively intact compared to the carnage suffered by Western ones, a proper recovery will only be possible if short-term interest rates do not spike, Jimmy Koh, head of economics and treasury research at United Overseas Bank, said yesterday.
China's gross domestic product, which surged 8.7 per cent last year and 10.7 per cent in Q4 2009 year-on-year, according to China's National Bureau of Statistics, had exceeded consensus expectations and spurred talk of an interest-rate hike this year.
Last week, in a monetary policy tightening move, China's central bank had announced a 50 basis point hike in the banks' reserve requirement ratio with effect from Monday.
Currently, there is little cause to fear a sharp increase in interest rates, according to Mr Koh.
'There should not be a major spike in interest rates globally unless something goes terribly wrong or the world gives up on the US dollar,' said Mr Koh, who was speaking at a Singapore Human Resources Institute conference yesterday.
Even then, a scenario in which the US dollar falls into jeopardy is an unlikely one.
'80 per cent of global trade is conducted in US dollars. The US dollar will weaken, but it will not collapse,' Mr Koh told conference participants yesterday.
Fears of a contagious Dubai and Greece meltdown are also overblown, all things remaining the same, according to Mr Koh.
'The Dubai situation might be painful but not fatal. As we now know, it was not about the ability to repay the debt, but the willingness to repay it,' said Mr Koh.
Where the financial crisis in Greece is concerned, the problem would have to reach a magnitude large enough to stop banks from lending again for the effects to be felt globally, he reckoned.
Even though equities have been coasting on the crest of a rally that began last March, Mr Koh cautioned against confusing it with a recovering economy.
'The recovery is not conclusive. We are not seeing a lot of corporates coming back with lots of orders. Asset prices are going up because of liquidity,' said Mr Koh.
The World Bank had said yesterday that the global economic recovery might lose some momentum this year as the impact of government stimulus policies tapers off.
Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.
Mr Koh: 'Asset prices are going up because of liquidity.'
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