India’s central bank is expected this week to hike interest rates for the seventh time in less than 12 months to clamp down on soaring inflation as clouds gather over the country’s booming economy.
Shares on the Mumbai Stock Exchange, one of last year’s hottest markets, have fallen to three-month lows due to expectations of interest rate rises, which will dampen economic growth currently running at 8.5 percent to 9 percent in Asia’s third-biggest economy.
Annual inflation zoomed last month to 8.43 percent, up by nearly 1 percentage point from the previous month, led by a spike in the cost of food, gasoline prices and commodities.
The Reserve Bank of India (RBI) has warned of “surging inflation.”
Further souring the mood, investment house Goldman Sachs issued an alert this month on India and China over inflation, telling clients to shift into Wall Street and other “old world” share markets as a safer bet in coming months.
“We expect the Reserve Bank will raise rates by 25 basis points but the possibility of 50 basis points also has to be entertained,” HSBC chief economist Lief Lybecker Eskesen said.
Rising prices have emerged as a major political and economic challenge in emerging markets across Asia, with China also expected to raise interest rates early next month to combat 5 percent inflation and a property bubble.
In India, pressure has been steadily growing on the central bank and government to act to rein in inflation which threatens Indian Prime Minister Manmohan Singh and his Congress party in the run-up to key state elections this year.
Rising food prices have added to public anger over a series of massive corruption scandals, creating a toxic mix for Singh’s administration just 18 months into its second term.
The price of onions, for example — a staple on family shopping lists and a politically potent issue — has tripled to 80 rupees (US$1.75) a kilogram in a few months.
“A lot of countries are still flirting with deflation. On the other hand, we are having surging inflation,” RBI Governor Duvvuri Subbarao said last week.
India’s central bank has been one of the most aggressive in raising the cost of borrowing as the South Asian economy roared out of the global downturn.
It has raised rates six times since last March, pushing the repo — the rate on loans it makes to commercial banks — to 6.25 percent and the reverse repo — the rate it pays to banks for deposits — to 5.25 percent.
Economists are split on the efficacy of raising interest rates to tackle inflation driven by food prices, but all agree that sustained rising prices can lead to a destabilizing wage-price spiral.
This was one of the concerns raised by Goldman Sachs in its report on India, which also focused on a yawning record current account deficit of 4.1 percent of GDP.
Investor enthusiasm for China is also cooling as it fights inflation and a property bubble amid expectations that the US will experience a strong recovery.
“Asia is not in the sweet part of the cycle. The longer-term picture of Asia outperforming the US is taking a breather,” said Tim Moe, Goldman’s chief Asia-Pacific strategist, British media reported.
However, Goldman Sachs and other economic houses say they are still bullish on the longer-term outlook for India with its vast market of 1.2 billion people.
“There are near-term hiccups for sure,” said Rohini Malkani an economist at Citi India, but the obstacles will “not be enough to derail the [India] story” with its vast consumer market.
SEEKING CLARITY: Washington should not adopt measures that create uncertainties for ‘existing semiconductor investments,’ TSMC said referring to its US$165 billion in the US Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) told the US that any future tariffs on Taiwanese semiconductors could reduce demand for chips and derail its pledge to increase its investment in Arizona. “New import restrictions could jeopardize current US leadership in the competitive technology industry and create uncertainties for many committed semiconductor capital projects in the US, including TSMC Arizona’s significant investment plan in Phoenix,” the chipmaker wrote in a letter to the US Department of Commerce. TSMC issued the warning in response to a solicitation for comments by the department on a possible tariff on semiconductor imports by US President Donald Trump’s
The government has launched a three-pronged strategy to attract local and international talent, aiming to position Taiwan as a new global hub following Nvidia Corp’s announcement that it has chosen Taipei as the site of its Taiwan headquarters. Nvidia cofounder and CEO Jensen Huang (黃仁勳) on Monday last week announced during his keynote speech at the Computex trade show in Taipei that the Nvidia Constellation, the company’s planned Taiwan headquarters, would be located in the Beitou-Shilin Technology Park (北投士林科技園區) in Taipei. Huang’s decision to establish a base in Taiwan is “primarily due to Taiwan’s talent pool and its strength in the semiconductor
An earnings report from semiconductor giant and artificial intelligence (AI) bellwether Nvidia Corp takes center stage for Wall Street this week, as stocks hit a speed bump of worries over US federal deficits driving up Treasury yields. US equities pulled back last week after a torrid rally, as investors turned their attention to tax and spending legislation poised to swell the US government’s US$36 trillion in debt. Long-dated US Treasury yields rose amid the fiscal worries, with the 30-year yield topping 5 percent and hitting its highest level since late 2023. Stocks were dealt another blow on Friday when US President Donald
UNCERTAINTY: Investors remain worried that trade negotiations with Washington could go poorly, given Trump’s inconsistency on tariffs in his second term, experts said The consumer confidence index this month fell for a ninth consecutive month to its lowest level in 13 months, as global trade uncertainties and tariff risks cloud Taiwan’s economic outlook, a survey released yesterday by National Central University found. The biggest decline came from the timing for stock investments, which plunged 11.82 points to 26.82, underscoring bleak investor confidence, it said. “Although the TAIEX reclaimed the 21,000-point mark after the US and China agreed to bury the hatchet for 90 days, investors remain worried that the situation would turn sour later,” said Dachrahn Wu (吳大任), director of the university’s Research Center for