Exchange rate weakness against a strong US dollar is a bigger concern for Asia than inflation, Taimur Baig, managing director of DBS Bank in Singapore, told CNBC on Thursday.
“We’re not particularly concerned about policy driving inflation, but the weakness of the exchange rate, the depletion of dollar liquidity, those things [are] a bigger problem [and issues such as] the balance of payments angle,” Baig told CNBC’s “Street Signs Asia.”
“If input prices go up for next year, even a country like India, which produces a lot of food for itself and exports to the rest of the world, would start to feel a bit insecure about food supply by 2023,” he said. . .
Baig, who is also chief economist at DBS, said a global energy crisis fueling inflation could lead to a bleak winter ahead.
“I find it very difficult to see how the gas situation in Europe will be resolved soon… China has yet to come out… of its zero covid policy. [The energy crisis] It’s not just an issue with regard to keeping homes warm, it’s also a very important factor in determining the food inflation outlook for the coming year,” Baig said.
“The problem is in Europe, but that affects energy prices around the world,” he said, adding that supply-side inflation is very likely to remain elevated throughout 2023 with “adverse implications” for energy. World economy.
The economist said there is “space and need” for Asian countries to support their economies through fiscal policies.
“On the monetary policy side, unfortunately there is no respite. They have to raise rates to slow down the economies and keep the current account on a sustainable basis,” Baig said.
“So this is why even a country like India, which is an investor favorite these days, I think still faces significant hurdles heading into 2023. And of course the other big hurdle in Asia is China, for its own idiosyncratic reasons.” he said.
On the other hand, Richard Martin of IMA Asia told CNBC that the dollar is nearing its peak. IMA’s managing director said on Thursday that central banks in the best emerging economies will continue to raise interest rates in anticipation of further tightening in the US.
“And…as they close that yield gap, the extra push into US dollar assets starts to wane,” Martin told CNBC’s “Street Signs Asia.”
He added that he doesn’t expect emerging market currencies, some of which have fallen 6% to 8% over the past year, to fall further. He predicted that these currencies would start to recover to their previous levels early next year.