Normalization of Asian Central Bank and Challenges to Normalization

Running head: FINANCIAL INSTITUTES AND MARKETS
Financial Institutes and Markets
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1FINANCIAL INSTITUTES AND MARKETS
Table of Contents
Normalization of Asian Central Bank........................................................................................2
Challenges to normalization of Asian central banks..............................................................2
US-China trade war and effect on normalization in Asia......................................................4
Effect on volatility in cryptocurrencies on normalization in Asia.........................................5
References..................................................................................................................................7

2FINANCIAL INSTITUTES AND MARKETS
Normalization of Asian Central Bank
The normalization policy of central banks refers to the attempt of the banks to reduce
size of the balance sheet. To accomplish the objective, the central bank’s target to increase
the interest rate from the benchmark level to return the environment of monetary policy
before the event of global financial crisis (Reid 2018). Like several other advanced
economies, Asian Central Banks are adapting normalization policy with believe that their
economy will account a strong growth in coming years. The normalization policy of Asian
central banks further followed from the normalization attempt of United State. The higher
interest rate of Fed makes domestic currencies of Asia less attractive lading to outflow of
capital. The monetary Authority of Singapore decided to tighten its monetary policy for the
first time in last six years. The tight monetary policy in Singapore was followed by the other
Asian countries such as Korea, Malaysia, Hong Kong, Philippines and others. The move
towards normalization has been backed by strong growth of Asian economies in last years
(Masciandaro and Volpicella 2016). Asian Development Bank predicts that the economy will
experience a real economic growth of 6.0 percent and 5.9 percent in 2018 and 2019
respectively. The continuous easing of monetary policy has the possibility of over-heating the
economy.
Challenges to normalization of Asian central banks
The normalization of central banks of several economies possesses tough challenges
compounded by a loose financial condition. Normalization at a much slower rate could lead
to overheating of the economy and associated financial risk. Moving too fast towards
normalization is also harmful for an economy. Faster pace of normalization is associated with
disruptive reactions of the market hampering economic recovery (bis.org 2018). The pace of