As crude oil prices hovered around US$126 a barrel in Asian trading, Lehman Brothers said global prices could climb as high as US$200 a barrel this year before easing to US$90 per barrel in the first quarter of next year.
Even so, central banks in Asia have not overreacted to the higher cost-push inflation rates in their economies over surging oil prices, Lehman Brothers economist Rob Subbaraman said in a report released yesterday.
The US investment bank’s research report said it was encouraging that several Asian economies such as India, Indonesia, Malaysia and Taiwan had begun to lower fuel subsidies and ease price controls in an attempt to avoid further damage to their fiscal and trade positions.
TRADE-OFF
But the trade-off would be a higher cost-push inflation rate for the region (excluding Japan), which Lehman Brothers said would increase to 6.4 percent this year from the previously predicted 6.1 percent.
A higher inflation rate is likely to weigh on domestic demand from corporations and households, the report said.
“If firms absorb more of the rising cost of raw materials, it squeezes profit margins; if firms pass on their higher costs to their customers, it saps consumer purchasing power,” it wrote.
RELUCTANT
Against this backdrop, and coupled with potential economic headwinds in the US and Europe — key markets for Asian exporters — Lehman Brothers said Asian central banks would be reluctant to hike rates aggressively, because inflation shock could be temporary and also because interest rates are not an effective instrument in dealing with cost-push inflation.
“This year, we expect policy interest rate hikes only in Indonesia, Philippines, Taiwan and Thailand, and of only 25-50bp [basis points]; that is, less than the rise in inflation in these countries,” but Lehman Brothers expected rates to remain on hold in all other countries, Subbaraman wrote.
BOARD MEETING
Taiwan’s central bank is scheduled to hold its quarterly board meeting later this month amid market speculation that it will announce a 16th consecutive quarterly raise in its benchmark interest rates since October 2004.
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