Asia Getting Fed Up With Bernanke's Rate Cuts
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May 2 (Bloomberg) Chalongphob Sussangkarn knows a thing or two about volatile currency markets.
Until February, he was the finance minister of Thailand, which over the last decade saw its currency plunge too low and surge too high. Yesterday, I bumped into Chalongphob at a Madrid hotel as he grappled anew with the vagaries of exchange rates this time as a consumer exchanging dollars.
``I should just get rid of these dollars before they fall even more,' joked the president of the Thailand Development Research Institute, as we exchanged U.S. currency for euros.
Thailand's currency, the baht, has risen 16 percent against the dollar over the past 18 months, part of an Asia-wide trend. Hastening the dollar's slide is a Federal Reserve set on avoiding recession at all costs. On April 30, the Fed lowered its benchmark interest rate by a quarter point to 2 percent, the seventh cut since September.
While the Fed hinted it may be ready to pause, the amount of monetary stimulus in the pipeline is a growing threat to Asia. One immediate side effect is rising currencies, which poses challenges for Asia's export-dependent economies.
The bigger issue is that easy money is fueling global inflation.
``With inflation running very high in most countries, the ability of central banks to reduce interest rates to offset the impact of the U.S. slowdown is going to be constrained,' says Subir Gokarn, Tokyo-based Asia-Pacific chief economist at Standard & Poor's.
Fed Chairman Ben Bernanke acts in the U.S.'s interest. Yet the Fed's cuts are adding ever more liquidity to global markets. While bad weather and the increased use of biofuels explain part of the run-up in food prices, rising oil costs are as a much a consequence of liquidity as demand.
Asia is on the front lines of the phenomenon, especially with investors like Mark Mobius betting on more rate cuts. Mobius, who oversees $47 billion in emerging-market equities at Templeton Asset Management Ltd., says Bernanke may cut rates to 1 percent as U.S. housing foreclosures worsen.
Central bankers in Asia could be excused for feeling a bit, well, fed up by sliding U.S. rates. Their concern is over ``hot money' flows of the kind that wreaked havoc in Asia a decade ago. Investors who had poured in amid rapid growth fled even faster at the first sign of trouble. Large amounts of the liquidity created by the Fed are heading Asia's way to tap its rapid economic growth.