Asia, struggling to maintain its economic growth, might be less vociferous in its protests to anyU.S.monetary stimulus measure, which was blamed in 2010 for the enormous capital flows to emerging markets that led to inflation and speculative equity market rise. Fed Chairman Ben S. Bernanke, in his policy announcement, two days ago, hinted at the prospect of another round of asset purchases, a so called QE3.
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Majority of the Asian countries were critical of the QE2, which came at a time when they were tightening their monetary policies to get a grip on the rising property and stock prices. Between December 2008 and March 2010, the Fed bought $1.7 trillion worth of Treasury and mortgage debt. A lot of that capital found its way intoAsia, which saw its foreign exchange reserves grow significantly. According to DBS Group Holdings, the region attracted about $2 billion of capital inflows daily, and according to an assessment bySingapore’s central bank, about $600 billion in foreign capital flowed intoAsiain the year through June 2010.
But this time around, things are different inAsia. The International Monetary Fund predicts growth in developingAsiato be at 7.3 percent this year, compared with 9.5 percent in 2010. Exports are slowing and Asian currencies have fallen. To stimulate growth, most Asian countries are considering the prospect of rate cuts. And this, coupled with the fact that inflation is under control, might make these countries averse to taking up measures to limit capital inflow. Economists are predicting the slowdown inAsiato spread to countries likeTaiwan, which is expected to report weaker growth when it releases gross domestic product figures on Jan. 31.South Koreaalso suffered a dip in exports, forcing the economy, last quarter, grow the least in two years. This broad decline inAsiawas summed up by the MSCI Asia Pacific Index of stocks, which slumped 17 percent last year.
The appetite for emerging market assets fell in 2011. The debt crisis inEuropeand the distinct likelihood ofGreecedefaulting, has led to investors searching for safer havens. September saw Asian currencies tumble the most since the region’s financial crisis in 1998. But things might change if the Fed ventures into another round of quantitative easing. Bank ofThailandGovernor Prasarn Trairatvorakul, in a distinct thumbs-up to the Fed’s decision to keep low rates until 2014, said that such action was necessary to facilitate economic recovery.