Reluctant emerging Asia, including India, could delay real interest rate hikes until 2022

Vendor hands Indian rupee banknotes to customer at a stall in Chauta Bazaar in Surat, Gujarat (representative image) | Photo: Karen Dias | Bloomberg

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Singapore: Central banks in emerging Asian countries should choose to support their economic recovery rather than tackle volatile price swings this year.

The eight emerging Asian economies, including India and Indonesia, would keep their benchmark interest rates stable until 2021, according to median forecasts from Bloomberg surveys of economists.

Higher real interest rates will allow some central banks in Asia to hold on, while for others the recent pick-up in inflation is expected to moderate. It all depends on how global interest rates move, and this week’s Federal Reserve meeting will be closely watched by policymakers across the region.

“To support the economic recovery, Asian central banks should maintain their accommodative stance and avoid hinting at future rate hikes,” said Duncan Tan, rate strategist at DBS Banking Group Ltd.

Considering that recent inflation rates have been high, Bangko Sentral ng Pilipinas and Reserve Bank of India seem most likely to rise due to inflation, Tan added.

After cutting its policy rate by 200 basis points last year, the Philippine central bank has remained stable since November, even with inflation exceeding the bank’s 2-4% target. The BSP estimated that average price gains this year will be slightly above target, while Governor Benjamin Diokno has signaled that the bank will keep its policy on hold while its loose monetary parameters trickle down to the economy.

“The real policy rate is likely to average close to -3% in 2021, and as the economy gradually reopens, even price dynamics on the marginal demand side would call for less accommodative policy,” said Joseph Incalcaterra, Chief Asean Economist at HSBC Holdings. Plc in Hong Kong.

India, South Korea

For India, which suffers from the world’s worst Covid-19 epidemic, wholesale price inflation accelerated in March to its fastest pace since late 2012, reflecting upward pressure on prices from higher raw materials and firmer input costs. Meanwhile, consumer prices rose 5.52% last month compared to the same period last year, beating expectations while remaining within the Reserve Bank of India.

South Korea is also a popular choice to be among the first in the region to normalize monetary policy, even if that means waiting until after 2021, as it has recorded a relatively lower number of virus cases and has benefited disproportionately from the virus. global electronics boom.

“We still believe Korea will be one of the first to make better progress in its vaccination campaign,” said Angela Hsieh, economist at Barclays Bank Plc in Singapore. “Improved mobility should help support the recovery in private spending and the labor market, which is still the missing factor for the Bank of Korea to consider normalization.”

Divergent growth and inflation expectations are playing out in the markets. Foreign investors invested a record 9.1 trillion won ($ 8.2 billion) in listed South Korean debt in March, with rate swaps already forecasting hikes of around 100 basis points over the years. next three years, making a liquidation unlikely. India and the Philippines, however, have recorded a combined net outflow of more than $ 4 billion since the start of the year in their bond markets, based on available data.

Much of emerging Asia’s policy will depend on progress in immunization – with many economies suffering from a supply shortage – and how quickly some economies in the region can cushion a recent surge in supplies. case. Meanwhile, their economies are generally better positioned than elsewhere in the emerging market world, with plentiful foreign exchange reserves and flourishing merchandise trade as two buffers that will give central bankers some leeway to consider normalizing rates.

Analysts are generally reluctant to bet on a single economy as a first investor in emerging Asia, given the multitude of uncertainties and the generally low atmosphere in terms of inflation. It’s hard to imagine Asian central banks rushing to raise rates unless they struggle with rapid capital outflows, said Selena Ling, head of treasury research and strategy at Oversea-Chinese Banking Corp. in Singapore.

Like the Federal Reserve, “a breach in inflation will largely be seen as temporary and should not on its own trigger a recalibration” in this region, Ling said. “At this point, with the mutations in the virus and the resurgence of Covid cases, most would hesitate to get ahead of the game. “- Bloomberg


Read also : This is how Reliance, Maruti and others are preparing to vaccinate the workforce from May 1


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