Recent moves by Asian central banks to raise interest rates are a strong vote of confidence that the region will weather risks stemming from the European debt crisis, analysts say.
Since June 24, the central banks of Taiwan, India, Malaysia and South Korea have lifted interest rates by between 12.5 and 25 basis points, citing the need to tame inflation as their economies rebound from the global downturn.
While Asia is not totally immune to the effects of a slowdown in Europe and the United States, the region's dependence on them has been reduced as Asian consumers now play a bigger role in supporting domestic economies, analysts said. "Concerns over Europe's debt crisis continue to smoulder but that hasn't stopped Asia's central banks from pushing ahead with monetary tightening" in the wake of rapid and sustained GDP growth, said Singapore's DBS Bank.
Inflation rates are "nearly back to average in all Asian countries and surely headed higher in months to come," it noted in a market analysis. DBS said the latest interest rate increases "are a loud vote of confidence from Asia's central banks that (Asia's) growth will continue despite weakness" in Europe, the United States and Japan, the region's top trading partners.
By increasing interest rates, Asian central banks are signalling that while these three markets matter, "Asia matters more", DBS added.
David Cohen, a Singapore-based regional economist with Action Economics, said the spate of interest rate hikes reflected growing Asian confidence as the region leads global growth. "As far as the economic outlook is concerned, global markets are clearly nervous about potential faltering in the global recovery but so far the data out of Asia has been encouraging," he told AFP. Cohen added that second quarter gross domestic product (GDP) figures, expected to come out this month, are likely to show a continuation of Asia's healthy economic expansion.
The International Monetary Fund on July 8 upgraded its GDP growth forecast for Asia this year to 7.5 percent from 7.0 percent, moderating to 6.8 percent in 2011. Taiwan's central bank on June 24 raised its key interest rate for the first time since the export-dependent island was thrown into recession by the global downturn.
The bank said a recovering economy prompted it to raise the discount rate by 12.5 basis points to 1.375 percent. On July 2, India's central bank hiked two key short-term interest rates by 25 basis points in a bid to tame double-digit inflation.
The increase, the third this year, had been predicted by many economists as India grapples with rising food prices, which have been spreading to other parts of the economy.
Malaysia followed on July 8, increasing its key interest rate for the third time this year, citing robust economic activity in the second quarter. The South Korean central bank had cut rates by a total of 325 basis points between October 2008 and February 2009 as the global financial crisis hit.
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