Stagflation Risks Rising in Asia; Could Impact Global Growth
|
Source: DB |
In spite of significant rate hikes since the lows of 2009 (chart
above), rates for most Asian countries are roughly where they should
be (except for Vietnam) based on the
Taylor Rule (chart below). India and Thailand could lower rates
another 100bp, but that's about it. In Sri Lanka, Indonesia and the
Philippines the rates may already be too low.
Source: DB |
As poor harvests propagate through the system and food inflation
risks kick in, lowering rates further to stimulate Asian economies
could become problematic. In fact these developments could spell
stagflation for a number of nations in Asia - an extremely difficult
situation for central banks to address.
DB: - Recent increases in wholesale and futures prices for corn and soybeans do not yet constitute enough of a potential threat to price stability to imply a need for rate hikes. But drought in the Western Hemisphere and a so-far disappointing monsoon in India do suggest that the risk of “stagflation” in Asia may be rising.
Source: SoberLook