Sub-Prime Crisis: Asian Govts Are Calm

Source : TODAY, Friday, August 17, 2007

ASIAN officials said the United States housing-loan crisis that has sparked a loodbath in the region’s stock markets would have minimal effect on their economies.

Their assurances came as central banks in Japan and the US injected fresh funds into their markets.

According to Hong Kong’s financial chief John Tsang, the city’s financial system is able to withstand the biggest daily slump in the benchmark Hang Seng stock index.

He told reporters in Beijing yesterday that the city’s government “can’t see the need for the time being” to inject any additional cash into the city’s banking system. “The government is confident the banks can withstand the market’s volatility,”he said.

In South Korea, the Vice Finance Minister Kim Seok-dong said: “Foreign investors are selling Korean stocks because of the global drop, not because of Korea-specific issues.” He added: “The size of the investment in sub-prime by our financial institutions is relatively small.”

US Treasury Secretary Henry Paulson told the Wall Street Journal that the financial turmoil would “extract a penalty” from US growth, though the economy is strong enough to avoid a recession.

The global stock sell-off “is going to be short-term”, Malaysia’s Deputy Finance Minister Awang Adek Hussin said. “It’s all originating from abroad,” he added.

Most Asian central banks have refrained from joining counterparts in the US, Europe and Japan in pumping cash into their markets over the past week, reflecting confidence that the fallout from the sub-prime mortgage losses can be contained.

The Bank of Japan said yesterday it injected 400 billion yen ($5.4 billion) into the banking system to try to curb a rise in short-term interest rates. Between Tuesday and Wednesday, it had siphoned off a total of 3.6 trillion yen — which is more than the 1.6 trillion yen pumped in between last Friday and Monday — when the overnight rate fell below its target of 0.5 per cent.

The US Federal Reserve injected US$7 billion ($10.8 billion) into the banking system on Wednesday, a smaller amount than the double-digits pumped in since last week. The total figure now stands at US$71 billion. —BLOOMBERG