Asia’s fight against price gains lacks “urgency” and policy makers need to raise interest rates more aggressively to restrain inflation expectations, Morgan Stanley Asia Ltd non-executive chairman Stephen Roach said yesterday.
Officials in export-dependent Asian economies are concerned global demand may falter and hurt growth, making them reluctant to tighten monetary policy quickly, Roach said in a note.
“The only effective anti-inflation strategy entails aggressive monetary tightening that takes policy rates into the restrictive zone,” Roach said. “The longer this is deferred, the more wrenching the ultimate policy adjustment, and its consequences for growth and employment, will be. With inflation — both headline and core — now on an accelerating path, Asian central banks can’t afford to slip further behind the curve.”
Investors are pushing the region’s currencies higher amid expectations of “a good deal more” tightening from Asian central banks, Roach said.
Benchmark policy rates are currently below headline inflation in India, South Korea, Hong Kong, Singapore, Thailand and Indonesia, Roach said, adding that they are “only slightly positive” in Taiwan, China and Malaysia.
“So far, the Chinese leadership has adopted a measured approach to inflation,” Roach said.
Chinese policy tightening “needs to shift much more decisively toward higher interest rates,” he added.