Kolkata, April 7 (BNA): Some Asian central banks are shaking off their long-standing reluctance to follow their global peers in raising benchmark interest rates from historic lows, as the Ukraine war has pushed consumer prices well outside policy makers’ comfort zones.
The region’s economies have largely lagged the reopenings of the United States and Europe from the pandemic, and central banks in Australia, India and Southeast Asia have so far mostly looked at inflation pressures from global supply hurdles, and focused more on supporting their recovery, Reuters reports. .
But this week, there was a notable shift in the language of some of the region’s less hawkish central banks on concerns that the renewed rise in commodity costs caused by Russia’s invasion of Ukraine could destabilize their economies.
Australia’s central bank on Tuesday ditched its earlier pledge to be “patient” in its assessment of current conditions, widely taken as a sign that the door is now open for its first rate hike in more than a decade.
Reserve Bank of Australia (RBA) Deputy Governor Michael Bullock said on Wednesday that the change in policy expectations reflects mounting evidence of inflationary pressures.
“It appears that the external inflation dynamics are becoming sufficient for the RBA to pre-emptively signal a turnaround,” said Ben Jarman, an economist at JPMorgan.
“The RBA guidance suggests that upcoming CPI and labor cost data are likely to settle the issue of normalization,” he said, expecting the first rate hike in June to come from previous forecasts for November.
Setting the global pace, the US Federal Reserve raised interest rates for the first time since 2018 last month and looks on the right track for a tough tightening cycle to combat rising inflation.
In the Philippines, central bank governor Benjamin Diokno said on Tuesday he was ready to take “precautionary action” if “inflation expectations” risked becoming “unstable”.
His comments contrast with more negative comments in March about “readiness to respond” and tracking data that showed consumer inflation pushing the higher end of the central bank’s projected range. Analysts now expect the bank to raise its benchmark interest rate in the second half of this year.
The Reserve Bank of India is not expected to raise interest rates at its meeting on Friday. But inflation remaining above the central bank’s 6% threshold has cast doubt on its current strategy of keeping interest rates low to support growth.
Taiwan’s central bank surprised markets last month by raising interest rates, and some economists expect more increases this year.
“The big picture is that inflation is becoming more difficult for central banks in the region, after it hasn’t been an issue in recent years,” said Crystal Tan, an economist at ANZ.
“Overall, the odds of forward policy price adjustments are rising.”
shift views
Some Asian economies, such as South Korea, Singapore and New Zealand, have already begun their shifts away from pandemic-era monetary stimulus last year as higher prices unsettled policy makers.
On the other hand, Asia’s two largest economies are still far from tightening monetary policy, as both Chinese and Japanese central banks are in no hurry to withdraw stimulus as they are focused on supporting growth.
Ironically, some of the world’s most cautious central bankers have been in emerging Asian markets – which have historically been seen as the most vulnerable to Fed rate hikes and inflationary shocks.
In Southeast Asia, government subsidies and price controls eased pressure on central banks by containing inflationary pressures.
As such, Thailand, Indonesia and Malaysia remain publicly committed to their commitment to low rates and talk about domestic price pressures, but also acknowledge emerging and persistent threats from global inflation.
The Governor of Bank Negara Malaysia said last week that it realized that the unprecedented conditions that heralded monetary support during the pandemic are almost over.
“So with the historical interest rate low, we are aware of the consequences of keeping interest rates low for a long period of time, which may lead to an unhealthy buildup of financial imbalances,” said Noor Shams Muhammad Yunus.