‘Sooner The Better’: Central Banks Hand Out Antivirals In Southeast Asia

Policymakers in Southeast Asia are prepared to inoculate against the coronavirus, and they demonstrated as much in both word and deed Wednesday.

Thailand cut rates for a third time in five meetings, and policymakers said the economy will grow “at a much lower rate in 2020 than the previous forecast”. The local tourism industry is expected to be waylaid by the impact of the outbreak, which adds insult to injury amid a crippling drought and budget wrangling.

The baht dove as much as 0.9% (bottom pane in the visual below), only to trim losses after reports that a vaccine for the virus is being tested in animals in the UK.

“AxJ FX trajectories show regional currencies remain highly sensitive to outbreak-related headlines as well as central bank signaling”, Maybank FX strategist Yanxi Tan said, stating the obvious. “We expect such volatility to continue, but currencies such as THB could stay soft overall on tourism concerns and BOT easing, barring more concrete signs of the contagion being contained”.

Meanwhile, the Singapore dollar plunged (top pane in the visual) on dovish commentary from the monetary authority, which indicated scope for the currency to adjust. Here’s the statement:

In response to media queries, the Monetary Authority of Singapore (MAS) said that its monetary policy stance remains unchanged. However, there is sufficient room within the policy band to accommodate an easing of the Singapore Dollar Nominal Effective Exchange Rate (S$NEER) in line with the weakening of economic conditions as a result of the outbreak of the 2019 novel coronavirus (2019-nCoV) in China and other countries, including Singapore.

In October 2019, MAS reduced slightly the rate of appreciation of the S$NEER policy band. The S$NEER has been fluctuating near the upper bound of the policy band since then. There is therefore sufficient room in the band for the S$NEER to ease in line with any weakness in the Singapore economy in the coming months.

MAS is monitoring economic developments closely. The next policy review remains as scheduled in April 2020.

Singapore has, of course, suffered from the Sino-US trade war and like other global demand bellwethers and coal mine canaries, is at risk of seeing the virus outbreak nullify any economic relief provided by the “Phase One” deal between the world’s two largest economies.

“[Virus optimism] isn’t being felt [in] Thailand and Singapore, with room for easier monetary policy being explored”, SocGen’s Kit Juckes said Wednesday. He also called things “too real to relax” in South Korea.

Elsewhere, Philippines central bank Governor Benjamin Diokno told Bloomberg in an interview that “sooner the better” is the best policy when it comes to getting out ahead of the virus’s possible impact on regional economies. That would appear to cement a rate cut on Thursday.

Finally, BI’s Perry Warjiyo told an event in Jakarta that policy will stay accommodative this year and that Indonesia won’t confine any monetary policy “adjustments” to rate cuts.

You get the idea. There’s definitely a will in the region when it comes to using monetary policy to cushion the economic blow from the burgeoning pandemic. As long as the Fed sticks with its own accommodative lean, EM rate cuts shouldn’t be destabilizing.


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