Hong Kong and Shanghai Bank Corp, the world's second-biggest bank by market value, yesterday dismissed concerns that tighter Chinese monetary policy will trigger interest rate hikes across Asia.
"Tightening in China is a necessary evil because a red-hot economy risks a hard landing," HSBC economist Arthur Woo said yesterday in a report on Asia's economic outlook.
The bank also dismissed worries that the region's increasing commodity prices may trigger inflation.
Wu argued that labor market conditions, including wages and employment, haven't reached a stage that will generate cost-push pressures, while many economies in Asia still have plenty of excess capacity in either the manufacturing or property sectors, which should limit pricing pressure.
"Inflation is unlikely to reach levels that could derail Asia's economic recovery," Wu concluded in the report, adding that "most of Asia's central banks can sit back and enjoy the economic ride."
Wu's outlook contrasts with that of Goldman Sachs, which said in a research report published last month that inflationary pressure, driven by an investment boom, was building in China.
That report, written by Kim Sun Bae, said China was exporting inflation to the rest of Asia through two channels: higher commodity prices and a firming of China's manufactured export prices.
Nevertheless, "fears of a policy-induced hard landing are overdone," the Goldman Sachs report concluded.
HSBC said investors need not worry that Asian central banks will be forced to take swift and pre-emptive action to address over-exaggerated inflationary fears.
Even so, Woo yesterday lumped Taiwan with Thailand as the two Asian countries outside of China that were the most likely raise rates, although such a rate hike may take place only later in the year.
The chief economist said that Taiwan was likely to begin lifting its benchmark rediscount rate -- currently at 1.375 percent -- as the nation's economy continues to beat expectations by both the private and governmental sectors. He noted that the nation's current rate of inflation, up 0.9 percent year-on-year in March, is running ahead of the government's full-year projection of 0.48 percent.
According to HSBC's inflationary scoring matrix, Taiwan scores the highest in terms of wages, employment, excess manufacturing capacity, commodity price pressure and reserve/broad money supply, which backs up the bank's view that Taiwan may need to take pre-emptive action.
Woo, however, added that rate hikes in Taiwan were unlikely before the second half of this year, when consumer confidence is likely to have rebounded and the presidential election dispute settled.
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