KUALA LUMPUR, Sept 7 — Policymakers do not have the same appetite or ability to cushion economies as they did at the start of the Covid-19 pandemic as other concerns are coming to the forefront, said Moody’s Analytics today.
Citing South Korea’s central bank, Moody’s Analytics said the Bank of Korea had hiked its policy rate in mid-August, the first major central bank in Asia-Pacific to do so, despite infections remaining elevated and lockdowns being extended in Greater Seoul, on concerns about financial stability.
“In particular, household debt has increased alongside house prices. Household debt increased 10.9 per cent year-on-year in the June quarter to US$1.54 trillion, according to the Bank of Korea. This was the largest quarterly gain since the data began in 2003,” it said in an analysis released today.
The analysis, titled “Forecaster’s Mailbag: Managing Pandemic Fatigue and Heightened Uncertainty,” was authored by senior Asia Pacific economist Katrina Ell and associate economist Dave Chia.
When Covid-19 first hit, policymakers across the globe took decisive and swift action on the monetary and fiscal front with central banks unveiling unprecedented monetary support to cushion domestic demand and ensure ample liquidity.
Moody’s Analytics noted that governments largely put politics aside and introduced packages that supported households and businesses feeling the pain of lockdowns as well as bolstering health support mechanisms.
Now, the pandemic is refusing to loosen its grip as the Delta variant of the virus infiltrates Asia-Pacific, forcing infection rates upward as infections across the region are sometimes at or near their highest on record, it said.
Moody’s Analytics said other central banks were also on the fringes, waiting to hike the interest rates, either late in 2021 or early 2022, including Indonesia and New Zealand as both of these economies are battling their own domestic infection outbreaks, but other concerns are coming to the forefront.
“In New Zealand’s case, the heated housing market, fuelled by very low borrowing costs, is a growing concern. In Indonesia, rupiah stability is a policy priority and will likely come under rising pressure as interest rate normalisation looms in the United States (US),” it added.
Moody’s Analytics said discretionary spending, hiring, capital spending, and economic recovery would be affected if households and businesses believe that the economic outlook was foggier than usual.
“Expansionary fiscal and monetary policy needs to support economic recoveries for longer in an environment of suppressed animal spirits. This adds to public debt loads, necessitating greater fiscal consolidation down the road,” it said.
— Bernama
