Asian Money Market Rates Rise as Banks Ignore Coordinated Move

By Nate Hosoda and David Yong

Oct. 9 (Bloomberg) -- Asian money market rates rose as banks remained reluctant to lend even after South Korea, Taiwan, Hong Kong and China lowered borrowing costs, while Japan and Australia pumped more than $42 billion into the financial system.

Hong Kong's three-month interbank offered rate jumped 25 basis points to 4.4 percent, a one-year high. Singapore's similar rate for dollar loans rose 19 basis points to 4.51 percent, the highest since Jan. 8. The interbank offered rate in Tokyo was fixed at 0.871 percent, the highest since Dec. 26.

``Interest-rate cuts will be of little help in the near term because the issue is trust, not rates,'' said Cezar Bayonito, a liquidity trader at Allied Banking Corp. in Makati, Philippines. ``The liquidity squeeze is still out there.''

Overnight dollar borrowing costs in London soared for a third day yesterday before the Federal Reserve, the European Central Bank, Bank of England, Bank of Canada and Sweden's Riksbank each reduced their benchmark rates half a percentage point in an unprecedented coordinated move. The Bank of Japan, which didn't participate, said it supported the action.

The Bank of Korea lowered its seven-day repurchase rate by 25 basis points, or 0.25 percentage point, to 5 percent, the Hong Kong Monetary Authority cut its base rate to 2 percent and the Central Bank of the Republic of China (Taiwan) cut the discount rate on 10-day loans to banks by 25 basis points to 3.25 percent. The People's Bank of China yesterday cut its key lending rate 27 basis points to 6.93 percent.

Clear Message

Japan's central bank injected 4 trillion yen ($40 billion) and the Reserve Bank of Australia added A$3.49 billion ($2.3 billion). The BOJ has pumped more than 25 trillion yen into the system over the past three weeks, the most in at least six years.

``The message from the central banks is clear -- they will do anything to recover from the confidence crisis,'' said Tomohiko Katsu, deputy general manager of the capital market division at Shinsei Bank Ltd. in Tokyo. Coordinated action is ``definitely good for sentiment but has no impact on the liquidity crisis itself. The money market hasn't changed much.''

Japan's overnight call loan rate traded at 0.51 percent, from 0.50 percent, according to Tokyo Tanshi Co. Foreign banks now pay 0.65 percent for overnight yen loans, reflecting a higher perceived risk of default, according to Tokyo Tanshi Co.

The difference between the rate Australian banks charge each other for three-month loans and the overnight indexed swap rate stood at 81.25 basis points from 78 basis points yesterday. The gap has averaged 47 points this year.

``These rates are still very high because the banks still won't lend to each other,'' said Gerrard Katz, head of foreign- exchange trading in Hong Kong at Standard Chartered Plc. ``Overall sentiment seems to be a touch better this morning after the rate cuts.''

Falling Rates

The South Korean rate for three-month commercial paper, an unsecured debt instrument issued by corporations, climbed 1 basis point to 6.66 percent, the highest since January 2001.

Taiwan's rate on 90-day commercial paper dropped 4 basis points to 2.17 percent, declining to the lowest since Dec. 20. The island's interest-rate reduction will ``help stimulate domestic demand and help the economy to grow in a sustainable manner,'' Governor Perng Fai-nan said.

New Zealand's three-month bank bill rates fell for a fourth day, dropping 12 basis points to 7.635 percent after the nation's central bank said it will increase the range of securities it will accept from lenders to boost liquidity.

Philippine one-month bank rates dropped 13 basis points to 4.875 percent. The Philippine central bank, which this week ended a series of rate cuts, needs to be ``responsive'' to the global credit crunch even if it's not facing a local banking crisis, Deputy Governor Nestor Espenilla said.

To contact the reporter on this story: Nate Hosoda in Tokyo at nhosoda@bloomberg.net; David Yong in Singapore at dyong@bloomberg.net.