February 23, 2011
Asia's Accelerating Inflation Bolsters Case for Higher Rates, Currencies
Accelerating inflation in Asian economies from Singapore to Vietnam is bolstering the case for further monetary tightening by central banks around the region.
Singapore’s inflation rate rose to a two-year high of 5.5 percent in January, while prices in Malaysia climbed at the fastest pace since mid-2009, reports today showed. Vietnam’s consumer prices gained the most in 24 months in February.
Asian currencies rose from a one-week low today on speculation central banks will raise interest rates as surging oil prices threaten to fuel inflation. China, India, Indonesia, South Korea, Thailand and Vietnam all increased borrowing costs this year, widening the gap with the U.S. Federal Reserve’s near-zero benchmark rate, as Asia leads a global recovery.
“Inflation continues to climb in Asia,” said Chua Hak Bin, a Singapore-based economist at Bank of America Merrill Lynch. “Asian central banks will have to stay tight or continue tightening in the coming months. Rising oil prices is however the next major threat, following on the heels of food prices.”
A 10 percent increase in global oil prices boosts inflation by about 10 to 40 basis points across Asian countries, with the lower income countries seeing a larger impact, Chua said. While currency strength has helped to partly offset inflation pressures, this option may become less tenable if growth decelerates more significantly, he said.
Oil Prices
Oil prices climbed to the highest level in more than two years as intensifying violence in Libya stoked concern that supplies will be disrupted should the turmoil spread to other crude-producing countries in the Middle East and North Africa.
The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-active currencies, added 0.2 percent to 116.23 as of 4:33 p.m. in Hong Kong. The Singapore dollar climbed 0.2 percent to S$1.2768 at 5:49 p.m.
“Asia is the region where interest-rate hikes are expected in some countries,” said Yuji Kameoka, chief currency strategist at Daiwa Institute of Research Ltd. in Tokyo. “That means regional currencies are also on a trend of appreciation. The region’s economy remains quite solid.”
Gains in commodity prices may hurt Asia’s growth should it force governments to tighten domestic policies to control inflation, Singapore Finance Minister Tharman Shanmugaratnam said Feb. 18.
Food, Commodities
“Food and other commodity prices have climbed sharply, because supply has been affected by harsh weather conditions while demand continues to grow in China and elsewhere,” Shanmugaratnam said. “The political uncertainties in the Middle East have also driven oil prices up. There will not be early relief from these inflationary pressures.”
Vietnam’s consumer prices rose 12.31 percent in February from a year earlier, according to figures released by the General Statistics Office in Hanoi today. The central bank raised its reverse repurchase rate yesterday, the second increase in borrowing costs in less than a week, as Prime Minister Nguyen Tan Dung prepares to order tighter monetary and fiscal policies to tame inflation.
The nation is under pressure to curb inflation that is poised to accelerate as electricity prices rise and four currency devaluations in 15 months spur import costs. It raised its refinancing rate by 2 percentage points to 11 percent last week.
Singapore Inflation
In Singapore, where the central bank uses the currency to manage price gains, consumer prices rose 5.5 percent in January from a year earlier, after climbing 4.6 percent in December, the government said today.
Wage pressures may also increase in Singapore as the government this month said companies will be required to increase contributions into employees’ pension funds and pay more to hire foreign workers.
Economists from Standard Chartered Plc to Citigroup Inc. are predicting the Monetary Authority of Singapore will revalue the currency or let it appreciate faster at the policy review in April. The central bank revalued the currency in April 2010 and said in October it would steepen and widen the currency’s trading band while continuing to seek a “modest and gradual appreciation.” link Singapore to Strengthen Currency at April Review
Consumer prices may climb 3 percent to 4 percent this year up from a previous forecast of 2 percent to 3 percent, the Singapore government said Feb. 17.
Asia's Accelerating Inflation Bolsters Case for Higher Rates, Currencies
Accelerating inflation in Asian economies from Singapore to Vietnam is bolstering the case for further monetary tightening by central banks around the region.
Singapore’s inflation rate rose to a two-year high of 5.5 percent in January, while prices in Malaysia climbed at the fastest pace since mid-2009, reports today showed. Vietnam’s consumer prices gained the most in 24 months in February.
Asian currencies rose from a one-week low today on speculation central banks will raise interest rates as surging oil prices threaten to fuel inflation. China, India, Indonesia, South Korea, Thailand and Vietnam all increased borrowing costs this year, widening the gap with the U.S. Federal Reserve’s near-zero benchmark rate, as Asia leads a global recovery.
“Inflation continues to climb in Asia,” said Chua Hak Bin, a Singapore-based economist at Bank of America Merrill Lynch. “Asian central banks will have to stay tight or continue tightening in the coming months. Rising oil prices is however the next major threat, following on the heels of food prices.”
A 10 percent increase in global oil prices boosts inflation by about 10 to 40 basis points across Asian countries, with the lower income countries seeing a larger impact, Chua said. While currency strength has helped to partly offset inflation pressures, this option may become less tenable if growth decelerates more significantly, he said.
Oil Prices
Oil prices climbed to the highest level in more than two years as intensifying violence in Libya stoked concern that supplies will be disrupted should the turmoil spread to other crude-producing countries in the Middle East and North Africa.
The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-active currencies, added 0.2 percent to 116.23 as of 4:33 p.m. in Hong Kong. The Singapore dollar climbed 0.2 percent to S$1.2768 at 5:49 p.m.
“Asia is the region where interest-rate hikes are expected in some countries,” said Yuji Kameoka, chief currency strategist at Daiwa Institute of Research Ltd. in Tokyo. “That means regional currencies are also on a trend of appreciation. The region’s economy remains quite solid.”
Gains in commodity prices may hurt Asia’s growth should it force governments to tighten domestic policies to control inflation, Singapore Finance Minister Tharman Shanmugaratnam said Feb. 18.
Food, Commodities
“Food and other commodity prices have climbed sharply, because supply has been affected by harsh weather conditions while demand continues to grow in China and elsewhere,” Shanmugaratnam said. “The political uncertainties in the Middle East have also driven oil prices up. There will not be early relief from these inflationary pressures.”
Vietnam’s consumer prices rose 12.31 percent in February from a year earlier, according to figures released by the General Statistics Office in Hanoi today. The central bank raised its reverse repurchase rate yesterday, the second increase in borrowing costs in less than a week, as Prime Minister Nguyen Tan Dung prepares to order tighter monetary and fiscal policies to tame inflation.
The nation is under pressure to curb inflation that is poised to accelerate as electricity prices rise and four currency devaluations in 15 months spur import costs. It raised its refinancing rate by 2 percentage points to 11 percent last week.
Singapore Inflation
In Singapore, where the central bank uses the currency to manage price gains, consumer prices rose 5.5 percent in January from a year earlier, after climbing 4.6 percent in December, the government said today.
Wage pressures may also increase in Singapore as the government this month said companies will be required to increase contributions into employees’ pension funds and pay more to hire foreign workers.
Economists from Standard Chartered Plc to Citigroup Inc. are predicting the Monetary Authority of Singapore will revalue the currency or let it appreciate faster at the policy review in April. The central bank revalued the currency in April 2010 and said in October it would steepen and widen the currency’s trading band while continuing to seek a “modest and gradual appreciation.” link Singapore to Strengthen Currency at April Review
Consumer prices may climb 3 percent to 4 percent this year up from a previous forecast of 2 percent to 3 percent, the Singapore government said Feb. 17.
Malaysian Rates
Malaysia’s inflation rate rose to 2.4 percent in January, the statistics department said today.
Bank Negara Malaysia’s benchmark interest rate of 2.75 percent has been left unchanged at the past three meetings, most recently in January when the central bank signaled it may use other monetary policy tools to manage excess cash that’s building up in the financial system.
read full article @ http://www.bloomberg.com/news/2011-02-23/asia-s-accelerating-inflation-bolsters-case-for-higher-rates-currencies.html
