THE Federal Reserve's (Fed) decision to postpone its rollback of United States stimulus offered Asian policymakers extra time to address domestic economic fragilities as the region copes with diminished capital inflows.
"The policy adjustment at the Fed is going to happen" at some point, World Bank managing director Sri Mulyani Indrawati said yesterday in an interview in Bali, where finance ministers from the Asia-Pacific Economic Cooperation are meeting.
Knowing how markets will react when that occurs, many emerging markets need to persist with structural reforms, she said.
The Fed's move spurred a rally in stocks and currencies from India to Indonesia, where officials in recent months have had to take steps including raising some interest rates to stem an outflow of capital.
"The fact that the money train will continue for a while means the risk of a hard-landing or a balance of payments crisis has been greatly reduced, if not averted," Frederic Neumann, co-head of Asian economic research at HSBC Holdings plc in Hong Kong, wrote in a note yesterday. "Policymakers in Asia will need to use this brief window to implement structural reforms to put Asian growth on a more sustainable path."
Rising shares across the region sent the MSCI Asia Pacific Index up 2.2 per cent as of 4.53pm in Tokyo. Indonesia's rupiah rose 1.7 per cent against the dollar and the Indian rupee was up more than two per cent.
The Fed yesterday said it wants more evidence of an economic recovery before paring its US$85 billion-a-month bond buying programme, surprising analysts who predicted a US$5 billion cut to purchases of Treasuries.
Emerging markets must continue reforms while waiting for the Fed's policy shift, Indonesian Finance Minister Chatib Basri said in a separate interview in Bali yesterday.
Indonesian growth won't be less than five per cent in the next one to two years, even as Southeast Asia's biggest economy must accept slower expansion to narrow the current-account deficit, Chatib said. Smaller growth may come from higher central bank interest rates, he said.
Bank Indonesia last week unexpectedly raised its benchmark rate for the fourth time since early June.
India will decide on its benchmark interest rates today, with all economists surveyed by Bloomberg News predicting borrowing costs to remain unchanged.
"We will have to continue with structural reforms and not overly depend on the Fed. We have to continue deepening our reforms," said Arvind Mayaram, Economic Affairs Secretary in India's Finance Ministry, said in New Delhi yesterday.
"We can't be complacent because the Fed's priority is its economy," even as the US authority has paid more attention to its impact on emerging markets in the last three years, Bank of Thailand governor Prasarn Trairatvorakul said. "We need to ... strengthen our economy in case the Fed's action has a strong impact on either inflows or outflows." Bloomberg