Homepage
PR Newswire
14-12-2010, 08:38 AM
Dec 14, 2010
More rate hikes in Asia next year: Expert
24 rises expected over next 6 months as central banks try to fend off inflation
By Robin Chan
Mr Carbon expects Singapore to tighten monetary policy next year, perhaps by allowing the Singdollar to strengthen at a faster pace.
CENTRAL banks in Asia are expected to pick up the pace of interest rate hikes in the next six months to fight the emerging threat of inflation.
Mr David Carbon, head of currency and economic research at DBS Bank, expects 24 more rate hikes from the region's various central banks in the next two quarters, after 21 this year.
However, he said central bankers will face immense pressure to implement these rises without attracting even more capital inflows from the West.
'Central banks are still behind the curve,' said Mr Carbon during a media briefing at DBS Tower 1 in Shenton Way yesterday.
In Singapore, India and China, inflation is two to three times the average level since the 1997 crisis. Inflation in Singapore rose to 3.5 per cent in October compared with the figure the previous year, up from a 1.3 per cent average. China's inflation hit 5.1 per cent last month, its highest level in more than two years.
Inflation concerns have already led China's central bank to lift interest rates and implement property-market cooling measures.
Indonesia, Malaysia, Thailand and India also raised rates, bringing the total number of rate hikes in the region to 21 this year.
Mr Carbon said this pace will pick up substantially in the next six months, led by Indonesia and Thailand with five and four moves expected respectively.
Singapore is also expected to tighten monetary policy, perhaps by allowing the Singdollar to strengthen at a faster pace at the Monetary Authority of Singapore's (MAS) policy meeting in April. He expects the local currency to move to $1.22 against the greenback by the end of next year. It was $1.31 yesterday.
MAS uses exchange rates as its monetary policy tool and not interest rates as most other central banks do. It steepened the slope of the exchange rate band after its meeting in October.
But rising interest rates are also drawing more capital from countries in the West such as the United States, which is essentially printing money in a process known as quantitative easing to boost spending.
Capital flows into Asia have led governments in South Korea, Thailand, Taiwan and China to impose some form of control on them. Capital inflows put further downward pressure on interest rates, making a central bank's job more difficult, said Mr Carbon.
Separately, Mr Peter Redward, head of emerging Asia research at Barclays Capital, said at a briefing that the local economy is 'in the stage of being overheated'.
'We're seeing that in the property market, in the construction sector and in the fact that inflation is moving beyond just administered price adjustments and food prices. It is going into the service sector - into health, education and services-related costs.'
Mr Redward said wage pressures will gain momentum next year, accentuated by 'a rise in wealth creation, inward migration and rising asset values'.
Rising wages in China flowing through into costs of manufactured goods from the country are also raising the cost of production in Singapore, he added, as China exports inflation across the region.
But the inflationary pressures will not lead to more tightening from MAS, believes Mr Craig Chan, Nomura's executive director of foreign exchange research.
'The (MAS has) argued that higher inflation and domestic cost pressures led to that move, and on that front I don't see much change in the situation... The justification for that tightening still remains very much intact at this point of time.'
chanckr@sph.com.sg
Additional reporting by Harsha Jethnani and Yasmine Yahya
More rate hikes in Asia next year: Expert
24 rises expected over next 6 months as central banks try to fend off inflation
By Robin Chan
Mr Carbon expects Singapore to tighten monetary policy next year, perhaps by allowing the Singdollar to strengthen at a faster pace.
CENTRAL banks in Asia are expected to pick up the pace of interest rate hikes in the next six months to fight the emerging threat of inflation.
Mr David Carbon, head of currency and economic research at DBS Bank, expects 24 more rate hikes from the region's various central banks in the next two quarters, after 21 this year.
However, he said central bankers will face immense pressure to implement these rises without attracting even more capital inflows from the West.
'Central banks are still behind the curve,' said Mr Carbon during a media briefing at DBS Tower 1 in Shenton Way yesterday.
In Singapore, India and China, inflation is two to three times the average level since the 1997 crisis. Inflation in Singapore rose to 3.5 per cent in October compared with the figure the previous year, up from a 1.3 per cent average. China's inflation hit 5.1 per cent last month, its highest level in more than two years.
Inflation concerns have already led China's central bank to lift interest rates and implement property-market cooling measures.
Indonesia, Malaysia, Thailand and India also raised rates, bringing the total number of rate hikes in the region to 21 this year.
Mr Carbon said this pace will pick up substantially in the next six months, led by Indonesia and Thailand with five and four moves expected respectively.
Singapore is also expected to tighten monetary policy, perhaps by allowing the Singdollar to strengthen at a faster pace at the Monetary Authority of Singapore's (MAS) policy meeting in April. He expects the local currency to move to $1.22 against the greenback by the end of next year. It was $1.31 yesterday.
MAS uses exchange rates as its monetary policy tool and not interest rates as most other central banks do. It steepened the slope of the exchange rate band after its meeting in October.
But rising interest rates are also drawing more capital from countries in the West such as the United States, which is essentially printing money in a process known as quantitative easing to boost spending.
Capital flows into Asia have led governments in South Korea, Thailand, Taiwan and China to impose some form of control on them. Capital inflows put further downward pressure on interest rates, making a central bank's job more difficult, said Mr Carbon.
Separately, Mr Peter Redward, head of emerging Asia research at Barclays Capital, said at a briefing that the local economy is 'in the stage of being overheated'.
'We're seeing that in the property market, in the construction sector and in the fact that inflation is moving beyond just administered price adjustments and food prices. It is going into the service sector - into health, education and services-related costs.'
Mr Redward said wage pressures will gain momentum next year, accentuated by 'a rise in wealth creation, inward migration and rising asset values'.
Rising wages in China flowing through into costs of manufactured goods from the country are also raising the cost of production in Singapore, he added, as China exports inflation across the region.
But the inflationary pressures will not lead to more tightening from MAS, believes Mr Craig Chan, Nomura's executive director of foreign exchange research.
'The (MAS has) argued that higher inflation and domestic cost pressures led to that move, and on that front I don't see much change in the situation... The justification for that tightening still remains very much intact at this point of time.'
chanckr@sph.com.sg
Additional reporting by Harsha Jethnani and Yasmine Yahya
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
