17/12/2015 Asia Business Report

Now on BBC News all the latest business news live from Singapore.

The Fed declares victory on America's economic recovery with the

first interest rate hike in nearly a decade. The economic recovery has

clearly come a long way, although it is not yet complete. Asian markets

surge on news but how will the decision affect us in the region? We

have a special report. Welcome to Asia Business Report. It is the

decision we've been waiting for and the vote was unanimous. The central

bank has raised the cost of borrowing for the first time in

almost a decade. It is only by a quarter of a percent. However it

ends of the historic era of ultralow interest rates at near zero. Though

it has long been anticipated it could affect markets and currencies

around the world. Let's hear from the Fed chair can it and the reasons

behind the increase. -- Janet Yellen. This action marks the end of

an extraordinary seven-year period during which the Fed rate was held

almost at zero to support the recovery of the economy from the

worst financial crisis since the great depression. It also recognises

the considerable progress that has been made toward restoring jobs,

raising incomes and easing the economic hardship of millions of

Americans. And it reflects the committee's confidence that the

economy will continue to strengthened. The economic recovery

has clearly come a long way although it is not yet complete. Room for

further improvement in the labour market remains and inflation

continues to run below the long-running objective. Bite with

the economy performing well, and expected to continue to do so. The

committee judged a modest increase in the Fed rate target is now a

appropriate -- but. That recognises that even after this increase,

monetary policy remains accommodative. She went on to say

that any further increase is would be gradual. Let's look at how

markets were reflected after this. They ended up 1%. The US dollar also

edged higher after a volatile day of trading. In Asia, all markets are

reacting positively with the Japanese Nikkei up 2%, Australia up

1%. Markets in Hong Kong and China have just started trading. Let's go

live to Hong Kong where our correspondent is standing by.

Firstly, the monetary authority of Hong Kong has raised the cost of

borrowing. We should save a dollar is pegged to the US dollar. What has

been the reaction so far? Well, the Hong Kong stock market has just

opened. It was a moderately positive response. The benchmark Hang Seng

index opened 0.7% higher. The China related indices doing a little bit

better. Clearly not quite as positive as other stock markets in

the region but I think the reason for that is, as you mentioned, Hong

Kong's central bank has become probably the first in Asia to hike

its benchmark lending rate to 0.75%, which was widely expected because of

the Hong Kong dollar has maintained a peg to the US dollar for a couple

of decades now. Essentially, what that means, is interest rates are

closely tied to what is happening in America. What that means for the

broader economy is a question mark. Many sectors in Hong Kong have seen

a slump, for example, tourism and retail, and Hong Kong is facing

slower Chinese growth rates in two decades. Perhaps rising interest

rates is not the best scenario for the city at the moment. At the same

time, prices are still incredibly high, property prices have more than

doubled since the global financial crisis. So I think you will see a

lot of consumers, especially people looking to purchase homes, I think

cheering the fact that property prices may be on the way down. What

about businesses in Hong Kong and also in China Bass how will this

rate hike Fx then? -- and also in China? -- affect them? Good

question. It is not entirely clear right now. The central bank has

raised its benchmark lending rate to other banks by there is a question

mark over whether commercial banks will pass the higher cost to

customers. There is quite a lot of liquidity in the market, in part

because of what's been happening with the Chinese yuan, with more

money flowing into Hong Kong since some are, so there is actually a

possibility that banks may not be raising the rates it charges its

customers which would be good for many businesses. Thank you. Earlier,

I spoke with the governor of the central bank of Sri Lanka on webcam

to get his reaction. Capital has been flowing out of the emerging

markets towards the United States for most of this year. And this

decision by the Fed, although it was well anticipated and well signalled,

is not going to change that very much. So, as a central bank

governor, my job is basically trying to forestall a lot of that money

flowing out of our country towards the developed markets. And what

about the impact on the currency market? We've seen the US dollar

strengthened already after the rates decision. In deep, so, what happens

is our currencies have weakened across the board in Asia, some more

spectacularly than others. And this means that the living standards of

ordinary people in countries across the emerging world have been

declining. That is because purchasing power in their local

currency has declined. It has political effects as well. And I

guess it makes your job rather tricky because you want to keep the

interest rates in the balanced position and also you have to

monitor inflation in your own country as well. That's right. You

have a sort of feedback effect. As they say, living standards fall, the

government tries to spend more on social security and subsidies and

suchlike, and so you may have a high threat of inflation than would have

been the case. We have to try to monitor the situation and if

necessary the central banks might see some tightening into the New

Year. The interest rate rise is not just a matter for central banks, the

markets and investors. How will it affect everyday life in Asia? Our

correspondent has a look. What do so -- soymilk pudding, Star Wars have

to do with the Fed reserve? Well, the decision on interest rates

serves up worries for folks in many parts of Asia. Take this man, who

owns a soymilk pudding franchise in Kuala Lumpur. His currency, the

Malaysian ringgit, will likely fall, which is bad for business. We import

raw materials from Singapore, which is a US do nominated currency. Any

currency fluctuations will directly affect us. We can't increase our

prices as willy-nilly as any other industry. It is a very competitive

industry, so our prices have to maintain, but costs keep rising

higher and higher. But it is more than just a business issue. The US

Fed moves strike at the heart of the Malaysian middle-class. For this

mother of two a rising US rates means that sending both of her

children overseas to university may no longer be possible. That currency

really had to make me rethink and plan. It will be unfair. It gives me

heart pain. We are still thinking whether we can do anything more for

our children. This was once a booming economy thanks in part for

the cheap money that poured into the market. Now all of it has changed.

In anticipation of higher interest rates in the US, investors have

started pulling their money out, which has had a knock-on effect on

everything from the stock market to the currency. But Malaysia is not

the only country in the region feeling this pain. Here in Singapore

the concern is higher interest rates in the US could push up the cost of

borrowing, and other countries like Indonesia, India and Australia might

also be affected. But it is not the first rate rise that has people

worried. More might be on the way. Historics suggest whenever the US

raises rates it is followed by a series of interest rate rises. From

that point of view, even though we are very prepared, there can still

be some element of surprises. What shouldn't surprise you is that Star

Wars, which premiered in Asia overnight, will dominate

conversations on Thursday. The film is a reminder of how pervasive

American influence is here and how much of a forced the US Fed is in

this part of the world. -- "Force." That is it for this edition of Asia

Business Report. Thank you for watching.

The headlines: The United States Federal Reserve has unanimously

decided to raise interest rates for the first time in nearly ten years.

The Fed raised its key rate by a quarter of a percentage point,