Monetary easing cycle has ended, says Deutsche Bank

MANILA, Philippines - The easing cycle for emerging Asian central banks has ended, following investors’ volatile reaction to the impending scale down of stimulus measures in the US, an investment bank said.

In a report dated June 20, Deutsche Bank said while “dissipating” inflation pressures may actually provide central banks room for more policy easing, concerns about capital flight “may caution them against more policy easing.”

“More recently rising bond yields in (advanced economies), intensifying discussions of Fed tapering, and the implications of these actions for EM (emerging markets) capital flows, have led to rapidly rising rates and falling EM currencies,” the bank explained.

For the past two weeks, a massive sell-off in the financial markets has occurred as investors continue to seek guidance on the US Federal Reserve’s pronouncement of an eventual scaling down of stimulus measures “later this year.”

A complete pullback may also happen by 2014, Deutsche Bank has said, once the world’s largest economy shows more signs of recovery from the global financial crisis that started five years ago.

The Philippine Stock Exchange index reacted negatively to the news, erasing all gains this year to close yesterday at 5,789.06, down 3.05 percent. The peso, meanwhile, averaged at 43.66 versus the dollar as of 3:15 p.m.

According to Deutsche Bank, growth in emerging Asia would remain solid despite the capital flight, although this would be slower than earlier projected. The Philippines, nonetheless, stands out among other nations.