Rising energy prices have created unease among Asian policymakers, who want to extend ultra-loose monetary policies that have supported economies amid the COVID-19 pandemic, but must also acknowledge that inflationary pressures and interest rates might have bottomed out, Singapore-based DBS Bank Ltd (星展銀行) said in a report on Friday.
Crude oil prices have more than doubled from last year’s level as most economies emerge from the pandemic, while natural gas prices have surged more than fourfold, fueled by pent-up private demand, public sector spending and supply-side disruptions, the report said.
“Supply-side response is likely, given the macroeconomic and socio-political ramifications of prolonged period of elevated energy prices,” DBS researchers led by chief economist Taimur Baig said in the report, referring to a plan by the US to release oil from its strategic reserves, negotiations between the EU and Russia to ease gas supplies and an adjustment by OPEC to its production quota.
Photo: CNA
Even so, the report said that oil prices are unlikely to see a correction in the near term amid robust demand worldwide.
Oil prices could hover between US$67 and US$72 per barrel this year, and between US$75 and US$80 per barrel next year, it said.
Economies that are vulnerable to costly conventional energy imports should speed up their shift to renewable energy, it said.
Energy transition is garnering more attention, especially following the two-week COP26 UN Climate Summit in Glasgow, Scotland, which ended on Friday, it added.
The report also commented on Asian countries’ ability to manage high energy prices, as well as likely fiscal or monetary policy responses to inflationary pressures.
Policymakers in the region are expected to use various tools to buffer the impact of rising energy prices, the report said, adding: “Our overall assessment is that higher inflation risk is not so great a threat to necessitate strong policy action.”
For example, state-owned CPC Corp, Taiwan (台灣中油) activated its price stabilization mechanism last month to limit an increase in retail gasoline and diesel prices, while state-run Taiwan Power Co (台電) in September froze electricity rates from this month to March next year to help stabilize consumer prices, the report said.
The nation’s consumer price index last month rose 2.58 percent from a year earlier, exceeding forecasts, mainly due to higher costs of fresh vegetables and fuel, the Directorate-General of Budget, Accounting and Statistics said on Nov. 5.
However, DBS said that the inflationary gauge would not likely stay above the central bank’s 2 percent alert level, expecting it to rise 1.9 percent this year and 1.3 percent next year, the report said.
The central bank would not raise interest rates until the second half of next year, DBS said, but the first increase would come in the third quarter, rather in the fourth quarter as it previously forecast.
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