[SINGAPORE] The world's largest money manager said Asian central banks aren't yet done with monetary easing and this will help power bond rallies in India, China, South Korea and Thailand even as US interest rates start to climb.
"We don't expect any central bank in Asia to hike rates in 2015," Joel Kim, the head of Asia-Pacific fixed income at BlackRock, which oversees US$4.65 trillion, said in an interview in Singapore Tuesday.
"They have to look at their own economies. Growth needs to be strong, and pretty much in every Asian country right now inflation is way below their targets." Local-currency debt in Asia has returned 1.1 per cent this year, led by a 5.3 per cent advance in Indonesia and 2.7 per cent in South Korea, Bloomberg indexes show. Central banks in India, China and Thailand are among more than 20 monetary authorities across the world that have lowered benchmark interest rates in 2015 to boost economic growth amid cooling inflation.
BlackRock predicts the Bank of Korea will probably reduce its seven-day repurchase rate by another 25 basis points this year to 1.50 per cent following a surprise 25 basis-point cut on March 12, Mr Kim said. China's reserve requirement ratio could be lowered by another 50 to 100 basis points this year, while authorities will keep the yuan "relatively stable," he said.
The People's Bank of China lowered borrowing costs for the second time in three months effective March 1, cutting the one-year deposit and lending rates by 25 basis points each to 2.5 per cent and 5.35 per cent, respectively. In February, it reduced the amount of reserves that banks have to keep on hand.
Yuan depreciation risks that are spurring capital outflows are complicating efforts to bring lower borrowing costs, according to Mr Kim. The currency has strengthened 0.16 per cent in Shanghai this year even as the PBOC lowered its reference rate by 0.4 per cent, data compiled by Bloomberg show.
Yuan positions for foreign-exchange purchases at Chinese financial institutions, a gauge of capital flows, fell by 108.3 billion yuan (US$17.5 billion) to 29.3 trillion yuan in January, the lowest in a year. That followed a drop of 118.4 billion yuan in December, signaling the biggest outflow since 2007. The positions increased by 42.2 billion yuan in February, the central bank reported Wednesday.
"If you depreciate your currency more at a quicker pace, the problem would only get bigger," Mr Kim said. "More money would leave and that is complicating domestic growth." Reserve- ratio cuts "are not even for easing, but to compensate for all the money that is leaving China right now," he said.
Developing Asia will grow 6.4 per cent this year, slowing from an expansion of 6.5 per cent in 2014 and 6.6 per cent in 2013, according to forecasts by the International Monetary Fund released in January. China, Asia's largest economy, is targeting growth of about 7 per cent this year, the slowest goal in more than 15 years.
The Bloomberg Dollar Spot Index, which tracks the greenback's performance against 10 major peers, has advanced 6 per cent this year amid the prospect that the Federal Reserve will raise interest rates as the US economy recovers. Half of the 10 most actively traded Asian currencies outside of Japan have appreciated against the dollar this year, led by a 1 per cent advance in the Indian rupee and 0.7 per cent in the Taiwan dollar.
"We still feel Asia currencies will outperform other emerging markets and also other developed-market currencies," Mr Kim said. To limit the fallout from a strong dollar, BlackRock is opting to fund trades through the yen or the euro, he said.