SINGAPORE, May 8: Asian interest rates should stay at their current lows until late this year despite hikes in Australia and South Korea as economic recovery remains fragile, economists said on Wednesday.

Australia and South Korea have notched better-than-expected economic growth and have a more robust domestic sector to drive growth compared with other Asian countries, they said.

Any shift by regional central banks towards higher interest rates should come only in the fourth quarter, as the economic recovery gains a more stable footing, they added.

South Korea on Tuesday raised its overnight call rate by a quarter percentage point to 4.25 per cent, becoming the first major Asian country to increase rates.

Australia’s central bank on Wednesday followed suit, announcing a rise — the first in nearly two years — in official interest rates of a quarter point to 4.5 per cent amid inflationary pressures and signs of overheating in some sectors.

I think the key difference is that those two countries have shown stronger-than-expected growth, said Song Seng Wun, a regional economist with G.K. Goh Research Pte. Ltd.

While their growth was boosted by exports, domestic demand in the two countries, particularly South Korea, was “a lot more robust”, he told AFP.

The central banks of both countries want to stay ahead of the curve. For the of the region, the headline GDP (gross domestic product) numbers may be improving but the quality of the growth is still at issue. It’s not a full-fledged recovery, he said.

Japan, the region’s sputtering economic engine, is unlikely to change monetary policy within the next 24 months, despite short-term interest rates being near zero.

If they raise interest rates (again), the deflationary expectations will become stronger and the yen will appreciate against the dollar very sharply, maybe even breaking the resistance level of 100 yen and the economy would enter recession again, said Credit Suisse First Boston chief economist Yasushi Okada.

Mriganka Jaipuriyar, who monitors Asia’s emerging markets for Standard and Poor’s, said any interest rate increase in the region would come at the end of the third quarter at the earliest.

Asia’s economic rebound is largely dependent on the recovery in the US, she said. The US is growing but there is still uncertainty.

Jaipuriyar said more evidence of sustained growth would be needed before interest rates were raised. The Korea story is different from the rest of the region, she said. She noted that monetary authorities in Indonesia were looking to further cut interest rates rather than increase them.—AFP