Asian markets skid as US Federal Reserve hikes interest rates

March 23, 2023 (MLN): Asian markets experienced a decline on Thursday following the US Federal Reserve's decision to raise interest rates and dampen hopes for future cuts to ease concerns over the banking sector.

Despite recent speculation that central banks would pause their monetary tightening campaign, officials announced a ninth consecutive increase in the cost of borrowing as they prioritized containing prices.

The 25-basis-point rise was half of what was expected at the beginning of the month. Fed Chair Jerome Powell also cautioned that rate cuts were not in their base case and suggested that banks needed more regulation to prevent another crisis.

Analysts believed that announcing a pause could have fueled worries about the banking sector's troubles. Powell added that the banking crisis would likely lead to "tighter credit conditions for households and businesses."

Treasury Secretary Janet Yellen also told lawmakers that authorities were not considering a blanket increase in deposit insurance for banks. After two days of gains, Asian markets fell, with Hong Kong, Tokyo, Shanghai, Seoul Sydney, Singapore, Manila, and Wellington all experiencing declines.

Despite this, some remain optimistic about the outlook, with John Bromhead of Australia & New Zealand Banking Group saying that he expects the risk tone to improve throughout the day.

Oil prices also fell as traders fretted over the impact of more rate hikes and a possible slowdown in economic activity.

ING Groep NV's Warren Patterson noted that macro data would continue to be the primary driver of price direction in the short term, with comments from Yellen on blanket deposit insurance putting renewed pressure on risk assets, including oil.

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