More moves in some of Asia’s major economies to try and prepare them for the impact of a slowdown in 2009.
Japan revealed a rate cut and its second stimulatory package on Friday; China’s Government made it clear it will be revealing more stimulation for its slowing economy with comments reported by State-run media from President Hu Jintao at the weekend, and India’s central bank cut its key interest rate for the second time in two weeks.
That was after last week’s third cut in two months by China’s central bank, and the 0.50% cut by the US Fed.
The Bank of England and the European Central Bank are both expected to reveal cuts of 0.50% this week, which will help their economies. Our Reserve Bank is expected to cut by 0.50% tomorrow. germany has revealed a $US64 billion stimulation package.
The moves in China and India come, like Australia, in economies still showing growth. The US, Europe, UK and Japan are either in recession or heading that way.
But like China’s third rate cut last week, India’s second in a fortnight at the weekend sends the message that the central government is now more concerned than it has been about future growth.
Besides the rate cut of 0.50%, the Indian central bank also cut the amount of banks and money lenders must hold in reserve. China has also been cutting its asset reserve ratio to release more money to be lent, especially to small and medium businesses.
China’s central bank and Government are also trying to take the pressure off a sliding property sector that is rapidly crunching itself.
The Reserve Bank of India lowered its repurchase rate to 7.5% from 8%, cut the assets reserve to 5.5% from 6.5%t, and cut the amount of money lenders are required to keep in government bonds to 24% from 25%.
The cut is a significant change from the policy that seemed to be in place just a week ago when Reserve Bank Governor Duwuri Subbarao was quoted as saying that a "heightened vigil” was needed to fight inflation.
Now, like central banks around the world, its growth that’s more vital: the slowing pace of growth will (quickly or slowly) ease the inflationary pressures, and where there’s a recession, end them very quickly.
Mr Subbarao had also warned that a weaker rupee may raise import costs and stoke inflation. (Lower rates could see the rupee weaken, just as the Aussie dollar has fallen as our rates have dropped 1.25% from September onwards).
Indian inflation is now easing slowing: wholesale price growth fell to 10.68% from 11.07% two weeks ago, the first time it had been under 11% since May.
The central bank last week reduced its forecast for Indian economic growth 7.5%, from the previous 8% for the year to March, 2009.
In China, Western media reported China’s President Hu Jintao as calling for a boost in domestic demand to maintain the nation’s economic growth in the face of the global financial crisis, state media reported Saturday.
Hu said that governments at all levels should "strive to expand domestic demand, especially consumer demand," as he visited farmers in the northern province of Shaanxi.
The official People’s Daily newspaper reported that he said "Currently, the fundamentals of our country’s economic development are good.
But was also reported ad admitting that "prominent contradictions and problems" existed in China’s economy due to the crisis.
"We must maintain confidence, raise spirits, perfect our policies, strengthen our struggle," the paper quoted him as saying, according to Bloomberg.
In China, comments like these are not reported unless there is a message to be sent.
The message from these comments is that China’s leaders are more worried about maintaining solid levels of economic growth than every before.
The post-Olympics slowdown feared is happening, but more to the rapid slide in the levels of demand in the US, Japanese, European and other economies in Asia.
It’s why that third rate cut in two months happened last week, hours before the Fed’s 0.50% cut.
GDP growth slowed to 9% in the third quarter of the year, the lowest growth figure since the second quarter of 2003, and the growth of its exports has also decreased.
The pace of expansion in exports in the first three quarters slowed by nearly 5% from last year, growing 22.3% to $US1.1 trillion US dollars.
The trade surplus is narrowing because of the slowing pace of export growth and the surge in the value of imports, led by sharply higher oil and other commodity prices, which are now on the way down.
Maintain strong levels of growth is seen as a vital policy objective in Beijing as it helps to keep a lid on the sort of social unrest we saw earlier in the year and in 2007 when people protested about soaring food prices and shortages of some essentials, such as cooking oil.
Bloomberg reported yesterday that there was another sign of the slowing pace of growth in China: the monthly purchasing managers Index fell to a seasonally adjusted 44.6 last month from 51.2 in September. A reading under 50 means contraction, above, expansion.
Bloomberg said that manufacturing contracted in July for the first time since the survey began in 2005. It also shrank in August. The October index was a record low.
The index is based on a survey of more than 700 companies in 20 industries, including energy, metallurgy, textile, automobiles and electronics.
And the Bank of Japan’s first interest rate cut in seven years on Friday has left no one really satisfied.
It was 0.20%, to a new rate of 0.30%, but western economists said it was another example of Japanese authorities baulking at making significant and strong policy statements and opting for the comfo
