Thu, Sep 22, 2005 - Page 10 News List

Economists see continued US rate hikes

By Jackie Lin  /  STAFF REPORTER

After Federal Reserve policymakers raised short-term interest rates for the 11th consecutive time at a meeting Tuesday, economists at Prudential Plc said the US central bank is expected to continuously jack up the rates by the year-end to fight off looming inflation.

In its remaining two meetings by the end of this year, the Fed is likely to raise rates to 4.25 percent against the backdrop of inflationary pressure and the US' overheating property market, said Thomas Tsao (曹幼非), head of the London-based financial services provider for "Greater China," at an investment forum yesterday.

The US rates hikes will also have a positive impact on the global economy, while helping to ease price pressures because most central banks will follow suit, Tsao said.

"In the short term, the rate hikes can help revise demand and prices worldwide. In the long run, they should exert a positive impact on global economic growth," he said.

China, India, Eastern Europe and Central and Southern America have become influential emerging markets, whose growing demand for crude oil and raw materials has been pushing up material prices and manufacturing costs.

India, for instance, attracted around US$8.7 billion of global capital last year, and has garnered US$7.8 billion in foreign investment in the first eight months of the year, he said.

"In view of these domestic and global factors, the Fed should increase rates with a `the-earlier-the-better' attitude to stem any possible causes of fuel price inflation," Tsao said.

Robert Rountree, head of investment services, predicted that global growth forecasts for next year should be solid, although crude oil prices might stay at US$60 per barrel.

"Global growth remains highly dependent on US consumers and capital investors in China," and Asia's economy next year is expected to experience a steady expansion, despite being most exposed to high oil prices compared with other regions, he said.

Citing figures released last month by the economic survey organization Consensus Economics (London), Rountree said Asia's 2006 GDP forecast would outstrip global growth of 3 percent, with China topping the list at 8.1 percent, followed by India's 6.1 percent and Indonesia's 5.8 percent. Taiwan's GDP growth this year would slightly slow to 3.7 percent, and rise to 4.1 percent next year, he added.

Looking ahead, Lee Jih-jien (李志堅), Prudential's deputy chief investment officer and vice president of fixed-income, said investors should buy short-term bonds.

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