Saturday, September 13, 2008

Global Easing In Monetary Policy Soon: OCBC

Source : The Business Times, September 13, 2008

THE global economy will likely end this year on a weak note and the weakness is expected to spill over into 2009, which may soon push central banks to ease monetary policy, says OCBC Bank's head of treasury research and strategy, Selena Ling.

While the US has skirted a technical recession, Europe, Japan and other key Asian countries including Singapore have become more vulnerable after marking quarter-on-quarter declines in their second quarter GDP.

'We are seeing a synchronised slowdown. It is not just the US - we are seeing it in Europe and Asia,' Ms Ling said at the OCBC Global Treasury Regional Economic and Business Forum yesterday.

She does not rule out a possible technical recession in Singapore, which may already have marked a negative quarter-on-quarter GDP growth in Q2, when GDP fell 6 per cent from a quarter earlier. 'If you ask me the possibility of that happening, I would say 40 per cent,' she told BT. 'That said, we are still looking at 3 per cent for the full year.'

After two rounds of monetary tightening, an easing by Singapore's central bank at its next policy meeting in October cannot be ruled out, she said. She expects the Monetary Authority of Singapore to flatten the slope of the exchange rate policy band, after having re-centred the band in April this year and steepening its slope in October last year.

Elsewhere, the eurozone is likely to enter a technical recession in Q3, which may prompt the European Central Bank to cut interest rates from 1.8 per cent to 1.2 per cent between 2008 and 2009, Ms Ling said. In China, while a post-Olympic crash is unlikely, the central bank may launch a fiscal stimulus package to boost the economy.

But Asia is still in a better position, as it is correcting from above-trend growth in past years. The current slowdown should therefore be 'taken with a pitch of salt' and not as a final capitulation point, Ms Ling said.

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