Sep 20, 2013

    Holdback by Fed gives Asia more time

    THE Federal Reserve's decision to postpone its rollback of US stimulus offered Asian policymakers extra time to address domestic economic fragilities as the region copes with diminished capital inflows.

    "The policy adjustment at the Fed is going to happen" at some point, World Bank managing director Sri Mulyani Indrawati said in Bali yesterday, where finance ministers from the Asia Pacific Economic Cooperation are meeting.

    The Fed's move spurred a rally in stocks and currencies from India to Indonesia, where officials in recent months have had to take steps, including raising some interest rates, to stem an outflow of capital.

    The reprieve still leaves India with the challenge of opening more industries to foreign investment, Indonesia with domestic infrastructure weaknesses, Malaysia with a persistent budget deficit and the Philippines with its anti- corruption campaign unfinished.

    "The fact that the money train will continue for a while means the risk of a hard landing or a balance-of- payments crisis has been greatly reduced, if not averted," Mr Frederic Neumann, co-head of Asian economic research at HSBC Holdings in Hong Kong, wrote in a note.

    "Policymakers in Asia will need to use this brief window to implement structural reforms to put Asian growth on a more sustainable path."