Asian countries must tame the current waves of the coronavirus outbreak in order to prepare their economies for future U.S. Federal Reserve rate hikes, an economist said on Monday.
Fed officials said last week that interest rate hikes could occur as early as 2023, contrary to earlier comments in March that the US central bank did not expect any hikes until at least 2024.
Higher US rates would attract investors from abroad, and central banks in other countries may have to raise their own rates to defend themselves. Raising interest rates could help countries prevent too much capital from leaving their economies, but raising rates too quickly increases the risk of an economic downturn.
“Asian countries need to get Covid under control so that once the Federal Reserve starts raising interest rates, the economies here are in a good position and can handle the transition as well,” said Steve Cochrane, chief economist Asia- Pacific at Moody’s Analytics. CNBC’s “Squawk Box Asia”.
Cochrane predicted that the U.S. central bank could hike interest rates by 25 basis points once a quarter starting in 2023. The dot chart of individual Fed members’ expectations showed two hikes that year.
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Asian countries need to get Covid under control so that once the Federal Reserve starts raising interest rates, the economies here are in a good position and can handle the transition as well.
Steve Cochrane
APAC Chief Economist, Moody’s Analytics
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–Many Asian economies, including Japan, Taiwan and Malaysia, have seen a further rise in Covid cases in recent months – forcing authorities to impose stricter social distancing measures. The new waves of infections come as immunization progress in the region lags behind the United States and Europe.
The World Bank said in a report This month, economic output in two-thirds of East Asian and Pacific countries will remain below pre-pandemic levels through 2022. Factors holding back potential economic growth in these countries include protracted Covid epidemics and a collapse in global tourism, the bank said.
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Cochrane pointed out that the Covid epidemics in the region are “consolidating” domestic demand and keeping inflation at a moderate level.
The economist said several Asian countries, including China, South Korea and Singapore, are stepping up vaccinations against Covid. “It looks good, but it has to keep moving forward,” he said.
But other countries, including Thailand, Indonesia and the Philippines, have not effectively controlled the outbreak and do not yet have strong vaccination programs, Cochrane added.
– CNBC’s Jeff Cox contributed to this report.
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