Monday, October 3, 2022

Singapore, Korea lead Asia’s central bank fight against inflation

While the four central banks began tightening policy last year to prevent price hikes caused by coronavirus-driven logistics constraints, the war in Ukraine, which began on February 24, has intensified supply pressures, There is an urgent need for policymakers to pursue the planned rate hike. ,

“We are likely to see more Asian central banks extend the timing of interest rate hikes,” said Toru Nishihama, chief economist at the Dai-ichi Life Research Institute in Tokyo. “It could hurt growth, but with inflation becoming a more imminent concern, they have little choice but to move towards tighter monetary policy.”

Asia-Pacific economies largely lagged behind US and European reopenings from the pandemic, which meant central banks in Australia, India and Southeast Asia so far saw most inflationary pressures as fleeting, with their More attention was paid to minimizing recovery.

Singapore, South Korea and New Zealand were exceptions and were particularly concerned about rising import prices and financial stability.

Bank of Korea delivered a surprise quarter of growth of one percentage point on Thursday.

Most economists expected it to come under fire as it awaits the appointment of a new governor, but with inflation in Asia’s fourth-largest economy hitting a decade-high, the bank said waiting was not an option.

Meanwhile, Singapore tightened its policy affecting its currency rather than interest rates, for the third time in six months, citing fresh risks from the Ukraine war.

Both meetings came less than a day after commodity-rich economies New Zealand and Canada raised their rates by half a percentage point, their biggest hike in two decades.

New Zealand’s growth was higher than economists expected and Canada warned that more would be needed.

get there fast, take it slow

Vishnu Varthan, head of economics and strategy at Mizuho Bank, said Singapore, South Korea, New Zealand and Canada were part of a group that urgently needed to get ahead of the threat of inflation.

Varthan said, “The so-called ‘Kokomo Club’ of central banks that aim to ‘get there fast, and then slow it down’ are essentially inclined to tighten the front-load, with an increase of 50 basis points as a hallmark.” as it is.” The Beach Boys’ 1988 hit song “Kokomo”.

While large peers such as the Federal Reserve and the European Central Bank were not aggressive enough in their stance, they said they were moving in that direction.

The challenge for many economies is that they have only begun a definitive recovery from the major pandemic-led recession, although inflation has since forced its hands on concerns that prices may trigger wider financial and price volatility. can do

In fact, some of Asia’s less aggressive central banks are also feeling the pressure to end their crisis-era policy.

The Reserve Bank of Australia kept rates last week but left a reference in its communication about being “patient” in viewing economic conditions.

Australia’s labor market is extremely tight with unemployment hitting a 13-year low and markets are now expecting the first hike since the start of the pandemic in June.

India’s central bank also kept rates at a record low last week but turned a step away from the ultra-lax policy.

While the economic impact of the Ukraine war has mostly been viewed in terms of inflation, with energy and food prices rising, analysts warn that policymakers will have to focus on the hit to growth.

Shane Oliver, head of investment strategy and chief economist at AMP Capital in Sydney, compared the current situation with the 1973 Saudi oil embargo that caused a global price shock.

“The (central banks) are in a dilemma that the longer this lasts, and this has been going on for a year now, the higher inflation expectations get and inflation will be as self-perpetuating as in the 1970s,” he said. said.

(Additional reporting by Leika Kihara in Tokyo and Tom Westbrook in Singapore; Writing by Sam Holmes; Editing by Mr. Navaratnam)

Nation World News Desk
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