Central banks in emerging market economies will have to continue with tighter monetary policy since inflation has accelerated in the first quarter and will continue so in the next quarter, HSBC bank has predicted.
“We have seen in the first quarter every single central bank in emerging market economies hike interest rates. Only this week, China has again raised interest rates, and this is a trend that will certainly continue in the second quarter,” said Frederic Neumann, HSBC's Co-Head of Asian Economics Research. India is likely to follow suit after the Reserve Bank of India's annual monetary and credit policy meeting on May 3.
High oil prices will be one of the ‘headwinds' that the emerging economies have to negotiate and this could retard growth and accelerate inflation, he said. Speaking on a conference call from his Hong Kong headquarters, he said the other problem in Asia was the ‘disruption' in Japan. “In the short-term, the fallout from Japan will weigh on trade flows and will weigh on exports,” he said and added that among the most affected economies in the region would be Taiwan, South Korea and Thailand.
However, HSBC's first quarter Emerging Markets Index thinks that the Japan problem will be short-lived. But since the Indian economy is not tied deeply with those in the region, such as Japan or China, the effects will not be as bad on India. “This is not to say that India does not have its challenges. High oil prices are of particular concern to the Indian economy… If oil prices get to $150 on Brent by the end of the year, that could shave up to one percentage point of growth from India. But nevertheless we are not there yet,” he said.
So far, statistics from India showed that the country was holding up well. “This is also good news for economies such as Sri Lanka and economies around the Indian Ocean that have a larger exposure to India than the East Asian economies,” he said.
