Asia¡¦s financial systems made fragile by deflation

Morgan Stanley said deflation in Asia is making financial systems fragile, raising the possibility that a mere "financial accident" could trigger a currency crisis in the latter half of 2002. It is possible that the average 3-month deposit rate for Asia excluding China and Japan could fall by another 200 basis points by April 2002, after an earlier decline of 200 basis points led by the U.S. Federal Reserve, said Xie. The weighted average of 3-month deposit rates across East Asia was 5.2 percent in July, with Singapore's 1.7 percent at the lower end and Indonesia's 15 percent in the upper end.

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