Business

Asian markets rally after 
expected Fed rate hike

US central bank raises benchmark interest rates one quarter of a percentage point


Markets across Asia including Singapore rallied yesterday, while the US dollar slipped, after the United States central bank raised benchmark interest rates as expected.

Some observers say it could mark the beginning of the end of ultra-cheap credit globally.

The Federal Reserve lifted rates one quarter of a percentage point, but it was less hawkish than expected on the pace of future rate hikes.

Higher oil prices, a weaker greenback and a strong lead from Wall Street also served as tailwinds for the Straits Times Index, which rallied 0.83 per cent yesterday, and is the best performing market in South-east Asia with a gain of 9.82 per cent so far this year.

Hong Kong jumped 2.08 per cent yesterday, Taiwan climbed 1 per cent, Malaysia gained 1.15 per cent, and Thailand was up 1.05 per cent.

As expected, the Fed continued to project two more increases this year to keep a lid on inflation as it rises above the 2 per cent target level.

Markets saw this as dovish, since expectations in some quarters of as many as four rate hikes this year were quashed.

The less hawkish tone weighed on the US dollar, which weakened to 1.4036 against the Singdollar, compared with 1.4124 on Wednesday.

Gold rallied to US$1,224.17 (S$1720) per ounce yesterday from US$1,201.37.

BULLISH

But CIMB Private Bank economist Song Seng Wun remains bullish on the greenback's outlook, saying: "Unless we see regional growth backed by stronger fundamentals and stronger exports, regional currencies will still be weaker relative to the US dollar."

But some analysts remain cautious as they still see the possibility of a faster pace of rate hikes this year if US economic data remains robust.

Fitch Ratings believes the latest US rate hike could mark the start of a significant shift in the global interest rate environments.

It now expects a total of seven hikes in 2017 and 2018.

While the period of ultra-low borrowing costs may be coming to an end, local property stocks rallied on the dovish Fed cues yesterday, and after the Singapore Government surprised with a slight tweak to cooling measures last week.

City Developments jumped 2.6 per cent or 27 cents to $10.50, UOL Group rose 2.2 per cent or 15 cents to $6.98, and CapitaLand gained 2.2 per cent or 0.8 cents to $3.73.

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