Inflation is less of a problem for Asia than exchange rate weakness in the face of a strong U.S. dollar, according to Taimur Baig, managing director of DBS Bank in Singapore, on Thursday.
“We’re not particularly worried about inflation driving policy, but exchange rate weakness, dollar liquidity drying up, those things [are] a bigger issue, [and issues such as] the balance of payments angle,” Baig revealed this on CNBC’s “Street Signs Asia.”
“If indeed input prices are going 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 becoming a bit insecure about food supply for 2023,” he said.
A worldwide energy problem flowing into inflation could result in a harsh winter, according to Baig, who is also the chief economist at DBS.
“I find it very hard to see how the gas situation for Europe is resolved anytime soon … China has yet to get out of … its zero-Covid policy. [The energy crisis] is not only an issue with respect to keeping homes warm, it is also a very big factor in determining the food inflation outlook of next year,” Baig said.
“The issue is in Europe, but that affects energy prices worldwide,” he said, as well as having “unfavorable repercussions” for the world economy, supply side inflation is likely to stay high through 2023.
The economist stated that Asian countries had “room and need” to bolster their economies through fiscal policy.
“On the monetary policy side, there is unfortunately no respite. They have to hike rates to slow economies down to keep the current account on a sustainable basis,” Baig said.
“So this is why even a country like India, which is a darling of investors these days, I think still faces substantial headwinds going into 2023. And of course, the other big headwind in Asia is China, for its own idiosyncratic reasons,” he said.
Separately, Richard Martin of IMA Asia told CNBC that the dollar is about to reach its peak. According to the managing director of IMA, interest rates will continue to rise in the stronger emerging economies in expectation of further tightening in the United States.
“And … as they close that yield gap, the extra push into the U.S. dollar assets starts to ease back,” Martin told CNBC’s “Street Signs Asia.”
He said that he does not anticipate more declines in developing market currencies, some of which have fallen by 6 to 8 percent over the past year. He projected that by the start of the next year, these currencies will begin to recover to their prior levels.