Asia Money Rates Extend Increases as Recession Spreading

By David Yong

Nov. 27 (Bloomberg) -- Asian financing costs extended gains as banks remained reluctant to lend after China’s biggest interest-rate cut in 11 years signaled the global recession’s impact on the region is deepening.

Hong Kong’s three-month interbank lending rate, Hibor, rose 4.7 basis points to 2 percent at the 11:15 a.m. local fixing. Tokyo’s rate added the most since Aug. 13, climbing 1.1 basis points to 0.868 percent. Australia’s three-month rate jumped 7.8 basis points to 4.56 percent, the biggest advance since Oct. 21.

“There’s something of a premium on money lent for more than a month that reflects an uncertain view of the global economy,” said Suresh Kumar Ramanathan, a rates and currency strategist at CIMB Investment Bank Bhd. in Kuala Lumpur. “Banks may still be seeking to provide against toxic debt come the year-end reporting season.”

Banks and companies are hoarding cash amid concern central bank rate cuts and government spending plans won’t avert the world’s worst recession since World War II. China’s economic deterioration may be accelerating, with some indicators showing a “faster decline” this month, the nation’s top economic planner said today. Woolworths Ltd., Australia’s biggest retailer, deferred plans to return money to shareholders, saying it wants to preserve its capital amid concerns about the world economy.

China’s central bank yesterday lowered its one-year lending rate by the most since the 1997 Asian financial crisis, less than three weeks after Premier Wen Jiabao unveiled a 4 trillion yuan ($586 billion) stimulus plan. The measures highlight government concerns the country risks spiraling unemployment, social unrest and the deepest economic slowdown in almost two decades.

Banks, brokerages and funds are cutting jobs amid almost $1 trillion of writedowns and credit losses since the start of 2007.

South Korea

South Korea’s one-year cross-currency rate was below zero for a fifth day, showing banks are paying close to a record rate to swap won for dollars amid a scarcity of the U.S. currency.

The rate declined 1.7 basis points to minus 0.402 percent as of 1:10 p.m. in Seoul, close to yesterday’s record minus 0.675 percent. The currency swap dipped below zero on Oct. 16 for the first time in at least nine years, after averaging 4 percent in the five years before the credit crunch started in July 2007. A basis point is 0.01 percentage point.

Singapore’s three-month U.S. dollar rate, or Sibor, fell by 0.4 basis point to 2.201 percent.

Australian Banks

The Reserve Bank of Australia pumped A$350 million ($228 million) into the financial system today after estimating the shortfall would be A$151 million. Banks yesterday reduced deposits held at the RBA by A$933 million to A$3.3 billion, the central bank said today on its Web site.

The difference between the rate Australian banks charge each other for three-month loans and the overnight swap rate, a measure of funding scarcity, fell three basis points to 53.5 basis points at 3:20 p.m. in Sydney, retreating from yesterday’s three-week high. The measure averaged 11 basis points in the five years to July 1, 2007.

The London interbank offered rate, or Libor, that banks say they charge one another for such loans dropped about two basis points to 2.18 percent yesterday, British Bankers’ Association data showed.

Banks Wary

In a sign banks remain wary of lending, financial institutions lodged 218.9 billion euros ($283 billion) overnight with the European Central Bank, the fifth straight day the figure surpassed 200 billion euros. Banks borrowed 2.2 billion euros at the ECB’s emergency overnight marginal rate of 3.75 percent.

The Libor-OIS spread, a gauge of cash scarcity among banks, was unchanged yesterday at 178 basis points. The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, widened to 212 basis points. The spread, which reached a low this year of 76 basis points in May, was at 464 basis points on Oct. 10, the most since Bloomberg began compiling the data in 1984.

Interest rates on U.S. commercial paper rose by the most in more than a month, with the highest-ranked 30-day CP climbing 47 basis points to 1.27 percent. That’s 27 basis points more than the Fed’s target rate for overnight loans, according to yields offered by companies and compiled by Bloomberg. The rate increased 59 basis points on Oct. 23. A basis point is 0.01 percentage point.

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