Shares rebounded across Asia yesterday but the long-term effect
of the US interest rate cut on the global economy and stock markets
remains unclear, said analysts.
To shore up a struggling economy, the US Federal Reserve on
Tuesday slashed the key federal funds rate by 75 basis points to
3.5 percent - the largest cut since 1984 - a week ahead of its
scheduled meeting.
Yesterday, the Shanghai Composite Index gained 3.14 percent
while Japan's Nikkei 225 Stock Average added 2 percent.
The biggest Asian advance came in Hong Kong, where the Hang Seng
Index surged 10.7 percent to reach 24090, the steepest point gain
in history - after its 13.6 percent dive in the previous two
days.
India's Sensex jumped 6 percent, but European markets
dropped.
In New York, stocks slid at the opening on continued recession
worries. The Dow Jones industrial average was down 190 points, or
1.6 percent, at 11780.
Chen Xingdong, chief economist of BNP Paribas Peregrine
Securities in Beijing, said: "The more-than-expected 75 point rate
cut by the US Fed provided an initial boost to the market." The
market had widely anticipated a 50 basis point cut.
"But the long-term trend of the markets and the global economy
is yet to become clear," he told China Daily.
The rate cut points to policymakers' deepening worries about US
economic prospects, which shows the situation is very serious, he
said.
Chen said the market gloom may linger for some time. "The
subprime crisis has affected the soundness of the US financial
system and it will also take a long time for the tumbling housing
market to recover."
If the US economy weakens, the global economy may suffer as the
former accounts for about 30 percent of the global economy, said
Wei Weixian, economist with University of International Business
and Economics.
"But we should not rush to such a conclusion," Wei told China
Daily.
The US Fed is expected to further cut the key interest rate
twice in the upcoming meetings to 2.5 percent.
If that happens, and is accompanied by stimulus measures from
other countries, he said, things may not be that "awful" for the
global economy.
The US Fed rate cut has narrowed the room for Chinese
policymakers to further raise the interest rate to tackle inflation
problems and also increase pressure on yuan revaluation because it
will lure more speculative capital, said Ma Hongman, a
Shanghai-based economist.
Stephen Green, Standard Chartered Bank's head of research in
China, agreed. "The Fed's move obviously creates more pressure on
China's central bank and complicates our view that it will continue
to hike bank interest rates."
China's economic growth will face downward pressure, warned Chen
from BNP.
Apart from the expected slowdown in the global economy, which
will drag down China's exports, the tightening macroeconomic
policies in recent years have built pressure on this year's
economic growth, he said. "This year's tightening will worsen the
situation."
(China Daily January 24, 2008)
