Asian countries, including Singapore to cut interest rates in wake of novel Wuhan coronavirus

Asian central banks are now facing clamours asking for them to slash interest rates in an effort to combat the unfolding outbreak crisis that is posing adverse effects on confidence, tourism and travel across Asia.

On Monday (3 Feb), in an effort to revitalise the slumping markets, the People’s Bank of China injected large amounts of liquidity as well as slashing interest rates. Indonesia’s central bank announced that it will also commit to strengthen Indonesia’s bonds and currency.

Singapore now has 18 confirmed cases of coronavirus, and the authorities are preparing the country for an economic impact that might be more damaging than the 2003’s Sars epidemic. Travels and tourists from China have been banned by the government Chinese tourists account for 20 per cent of Singapore’s international visitors.

Support measures will likely be included in the upcoming Budget 2020 to strengthen industries such as transport and tourism. Economists, including those from Citigroup and JP Morgan Chase & Co foresee a higher risk that monetary loosening will be conducted by the Monetary Authority of Singapore in April this year.

Worst adverse effects may spill over to the rest of Asia to due to these countries’ dependence on Chinese tourists and demand. A few of the central banks in this region still have policy space to ease monetary policy when globally interest rates have reached the bottom low.

For the case of Australia, Reserve Bank of Australia will decide on its policy on Tuesday 4 Feb. Economists will pay close attention to the accompanying statement of the Reserve Bank regarding the impact of the virus, even though markets are not expecting interest rates to be slashed yet.

In Thailand, voices are getting louder calling for a cut on Wednesday (5 Feb) but so far there is no consensus estimate. On the other hand, Philippines is expecting a cut on Thursday (6 Feb) and it has also reported the virus first casualty outside of China.


Last weekend, India announced its budget that was underwhelming for those who are asking for more stimulus. It will also adjust policy on Thursday (6 Feb) but India’s central bank may not have much policy leeway as inflation has also recently risen. Some economists hope that a decision on the measures to boost the slowing economy will be reached.

Flight services to Mainland China have been suspended airline companies and China’s stringent travel restrictions are posing increasing growth risks. According to estimates by Bloomberg Economics, even if the epidemic were transient but severe, China’s first-quarter GDP growth would decline to 4.5 per cent record low. Tao Wang, the UBS Group’s economist, foresees a 3.8 per cent slump in the economy.

The head of India and South-east Asia research at Oxford Economics in Singapore, Priyanka Kishore remarked that “The downside risks to growth have increased substantially in the short-term, especially for the more tourism-oriented countries like Thailand.”


Prior to the viral outbreak, the manufacturing sector was already off on a shaky start at the beginning of 2020 due to the uncertainty of the US-China trade tension.

Also, the purchasing managers index (PMI), a measure for global demand, for South Korea also declined from 50.1 in December to 49.8 in January this year.

Thailand saw its tourism industry, which accounts for one-fifth of its economy, take a blow due to the ban on Chinese travel. Due to government spending delays and drought, growth was already losing steam. In light of this, growth forecast may be revised downwards from 2.8 per cent, as hinted by the central bank last week.

The chief economist at Bangkok Bank, Burin Adulwattana commented that “The central bank needs to do something to help shore up confidence now…We used to think the revenue stream from tourism will help drive the economy this year while other engines are weak. Now that engine is gone. One cut may not be enough this year depending on the severity of the pandemic.”

In Indonesia, interest rates were slashed four times in 2019 by Bank Indonesia. On Monday (4 Feb), the central bank strengthened its intervention in the currency and bond markets to minimize the domestic currency, rupiah losses. As the central bank assess the magnitude of the outbreak, it will consider further policy measure and “future utilization of easing space will be carried out at the right timing,” Deputy Governor Dody Budi Waluyo stated.

Should the situation take a turn for the worse,“the government may opt to stimulate the economy via a more aggressive fiscal policy, since doubts remain over the efficacy of monetary easing amid tepid loan demand,” David Sumual, the chief economist of PT Bank Central Asia in Jakarta remarked.

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