Sunday, February 7, 2010
Inflation Risks in Asia
This article deals with inflation and the current speculations that some Asian countries may have to deal with increased inflation in the near future. Last year the central banks in Asia were flooding their markets with currency to stimulate growth, but now they are fearing they are growing too fast and may see increased inflation. Robert Subaramen, the cheif economist in Hong Kong says, " the biggest risk facing Asia was that of an unexpected increase in commodity prices driving up inflation." Central banks in Asia could fix this problem by decreasing the amount of money they are putting into the system or increasing interest rates, but since the U.S. Federal Reserve is unlikely to raise interest rates until later this year the Asian central banks will probably keep their interest rates low until the U.S. changes fearing the loss of speculative money from other countries. Instead of raising interest rates India and China have experimented with other methods such as increasing the reserve requirment of their banks, and the Phillippines have raised the rate on short term lending. Both of these stragegies keep the interest rate the same, but some economist fear this will not be enough to keep inflation from rising.
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Last year during the economic hard times, Asian economies were not impaired as much as did the western economies. But in fear of recession, Asian governemets have loaned out too much of money. Now when the recovery is on, they fear inflation. Banks loaned out money at low interest rate, if the inflation is higher than their interest rate they will make a big loss. In such consequence, China's move to tighten the money supply is considered to be a wise move. Other emerging economies such as India should also follow the path shown by China.
ReplyDeleteMany people do not know that Asian countries also had large economic stimulus plan very much like the stimulus plan obama made for the U.S. The largest was probably China's which made up for the slack in their growth rate that the recession slowed, falsly keeping them at about an 8%.
ReplyDeleteThese large stimulus plans have done the most to flood the countries with money. The money supply can not be limited by very much if the governments continue to spend to help their economy or 'bail out' like Obama has done for the U.S.
I do feel it true that not only in Asia, but also all over the world, the inflation pressure is slowly getting up. In Asia, during the crisis in 2008, Chinese government has done the 4 billion stimulus plan, and now, it slowly turns into use. I cannot imagine how it will be if such amount of money times the money multiplier. Good to hear that the Chinese center bank is starting curbing the economy, though it just starts to turn back. In US and other countries in the world, the government or center bank has been constantly putting money in economy. Although, right now, it does not show much influence like that in US, because the banks are holding large amount of extra cash instead of loaning it out. But, as the crisis dying down, the economy is slowing getting warmer and warmer. What will it be if the Fed still ignores the trend and constantly inject money though it has no use to goad up banks' attention to loan out right now. I feel quite surprised to see that still many economists claim that governments and center banks should loose the regulation to the economy.
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