Asia feels crisis and Brown seeks Gulf help
NEW YORK/LONDON |
NEW YORK/LONDON (Reuters) - Two Asian powerhouse economies felt the sting of the global financial crisis on Saturday as India cut its main short-term lending rate and China said it was bracing for a slowdown.
Prime Minister Gordon Brown traveled to the Gulf in an appeal to oil-rich states to pour money into stabilizing the world financial system and help afflicted countries.
Other countries took steps to shore up their own economies. Russia moved 170 billion rubles (3.96 billion pounds) from a national fund to a state bank, and Russian shares rose in a special Saturday session].
And German Chancellor Angela Merkel urged German banks to tap a 500 billion euro (394 billion pounds) government rescue package. She and Brown will meet in London on Thursday.
The developments in the worst financial crisis in eight decades followed signs in the past week that world markets were stabilising, with interbank rates falling and U.S. stocks posting their best week in 34 years.
But in Shanghai, a senior Bank of China executive said the impact of the crisis on China has started to appear.
China has seen a sharp slowdown in industrial profit growth and fiscal income, Executive Vice President Zhu Min said.
The global economy will likely enter recession next year with the United States, Europe and Japan posting negative growth, he said.
"That will have a huge impact on China," he said.
Zhu also said currency volatility was expected to add further pressure on China's banks, which have enjoyed robust profits for years as the country boomed. Earnings growth is now slowing as the economy cools from the impact of the crisis.
"The uncertainties in the world's currency markets have exposed the Chinese banking sector to higher foreign asset risk," Zhu told a financial conference.
ACTION ON LIQUIDITY FRONT
In India -- like China, a magnet for foreign investment in recent years as their economies roared -- the central bank cut its main lending rate for the second time in as many weeks to ease a cash squeeze and spur economic growth.
Analysts said the surprise move showed Indian concern that strains on its economy were quickly becoming more severe.
"These actions were necessary (and had) to be taken on the liquidity front ... the situation was getting worse," said Vikas Agarwal, a strategist at JP Morgan.
The central bank cut the repo rate, its main short-term lending rate, by 0.5 percentage point to 7.5 percent and banks' cash reserve requirements by 1 percentage point to 5.5 percent.
"The global financial turmoil has had knock-on effects on our financial markets; this has reinforced the importance of focussing on preserving financial stability," the bank said.
Policymakers around the world have slashed interest rates in recent weeks and injected huge amounts into their banking systems to try to combat the spillover effects of the global crisis, which is causing credit markets to freeze up and threatens to plunge the world economy into recession.
Britain's Brown, speaking before he left for the Gulf, said Saudi Arabia and other oil-producing states could contribute funds to the International Monetary Fund or other entities to ease the crisis.
"Their interest is in a stable energy price, not in the massive volatility we have seen where oil prices have shot up and then come down again. Their interest too is in a well-functioning global economy," Brown told Sky News.
Business secretary Peter Mandelson, in Riyadh with Brown, said Europe should not discourage investment by foreign governments, the day after Britain's Barclays tapped Abu Dhabi and Qatar for the bulk of a $12 billion investment.
Brown's tour precedes a global summit in Washington on November 15 at which Brown and some other world leaders will press for reform in the international financial system.
Republican John McCain and Democrat Barack Obama, vying to succeed U.S. President George W. Bush in January, swept through battleground states before Tuesday's election.
Russia meanwhile placed 170 billion roubles ($6.41 billion) from its National Wealth Fund with state bank VEB as part of a plan which will allow for state purchases of shares and corporate bonds.
The state share purchases helped Russian shares rise sharply in a special session on Saturday, helping them to a 50 percent gain for the week.
The Swiss National Bank said it was growing more concerned over Switzerland's economy.
"The situation has noticeably worsened because the financial crisis is clearly affecting the real economy," SNB Chairman Jean-Pierre Roth said in a newspaper interview.
"We have two elements which are not pointing in the right direction -- the nominal development in the franc and the three-month LIBOR rate, which is above our target," Roth told the Neue Zuercher Zeitung. "This is a big challenge for us."
The business outlook weakened in the United States, where the economic crisis has dominated the presidential campaign.
A U.S. Commerce Department report on Friday showed consumers cut monthly spending for the first time in two years in September, evidently bracing for hard times as jobs continue to disappear and credit conditions tighten.
As another week ended in the crisis, the Bank of Japan slashed interest rates and JPMorgan Chase & Co, the largest U.S. bank, temporarily halted home foreclosures and offered to renegotiate mortgages.
The Japan rate slash followed a cut by the U.S. Federal Reserve on Wednesday. The European Central Bank and the Bank of England are expected to do the same next week. (Reporting by Matt Falloon; Saikat Chatterjee, Samuel Shen, Edmund Klamann; Writing by Eddie Evans; Editing by Doina Chiacu)
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