Asian central banks still behind in raising interest rates: analysts
2011-03-16 17:43:12
Fuel prices - which account for a large part of consumer prices in Asia - remain high with Brent crude oil at US$110 a barrel; and analysts say central banks may need to apply other measures to dispel the threat of inflation.
India's central bank is expected to raise borrowing costs by 25 basis points Thursday.
This would be the eight rate increase in just over a year for the Reserve Bank of India, which is grappling with the highest inflation rate in Asia.
High consumer prices are also plaguing other Asian countries, such as Indonesia, where inflation was nearly 7 percent in February.
"We're basically looking for another 100bps of policy rate increases across most of the countries in Asia by the end of this year, which means we're about half way through the tightening cycle as we see it," said Mr David Carbon, head of economic and currency research for DBS Group Research.
"Last year in 2010 we had 22-24 rate hikes in the region, we've had about seven more this year and we're looking for another 32-34 hikes by the end of this year," added Mr Carbon.
Economists are optimistic, however, that the monetary tightening programme that Asian central banks are currently pursuing will be enough to tame the inflation threat by mid-year.
Thailand raised rates last week, as did South Korea, and Bank Indonesia is expected to follow suit at its upcoming meeting in April.
"Central banks are coming onto the curve by and large. By the second half of the year, we may see some inflation prints coming down. If oil continues to go up, it would give further inflation impact to the region, but from the policy action front, those who have been hawkish will continue to posture hawkishly and that will help to curtail inflation expectations," said Mr Wellian Wiranto, asian economist for HSBC Global Research.
Analysts also add that central banks in Asia will have to closely monitor the fallout of the disaster in Japan.
For now, its impact on energy markets has been to depress prices. But if oil prices spiral higher, monetary tightening may have to be stepped up in Asia.