Asian central banks can do little as Covid cases surge, recovery falters

 In Asia as Covid-19 cases are surging and slow pace of vaccinations, relegating central banks to a supporting role as interest rates already low, policies will center on more government borrowing.

Asia’s surging coronavirus infections and slow pace of vaccinations are testing the limits of what central banks can do to further support what, until recently, had been the world’s stand-out economic recovery.

With interest rates already low, the likely policy response will center on more government borrowing, relegating central banks to a supporting role. That backdrop will overshadow decisions this week where policymakers are expected to keep rates on hold -- Indonesia, South Korea, and New Zealand.

“In my view, there is little room for further monetary policy stimulus, at least in terms of traditional policy levers like interest rate cuts,” said Tuuli McCully, head of Asia-Pacific economics at Scotiabank. “I expect additional fiscal stimulus to play a key role in helping economies.”

In Jakarta, the finance ministry has offered more tax cuts to spur economic activity and plans to stick with its $84 billion net bond issuance target this year, even as borrowing costs climb. Bank Indonesia is expected to keep rates unchanged Tuesday.

South Korea’s economy is being cushioned by soaring exports even as rolling social distancing restrictions damp consumer spending -- prompting the government to pledge more fiscal spending to create jobs. The Bank of Korea is also expected to remain on hold when it meets Thursday.

New Zealand’s economy continues to recover, amid a low case count, after contracting at the end of last year. The Reserve Bank of New Zealand is expected to hold steady Wednesday after the government’s annual budget last week included the biggest increase in welfare payments in more than a generation as part of measures to support growth.

India is the global epicenter of the latest virus surge, and even other economies that had kept infections under control -- such as Singapore and Taiwan -- are also battling flare-ups. Japan continues to struggle with spreading cases and even China is seeing an uptick in infections.