Dollar strength is more worrying than inflation for Asia, economist says

Exchange rate weakness against a strong U.S. 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 worried about inflation policy, but the weak exchange rate, the drying up 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 indeed 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 get a bit uncertain about the food supply for 2023,” he said. .

Baig, who is also chief economist at DBS, said a global energy crisis fueling inflation could lead to a dark winter ahead.

“I have a hard time seeing how the gas situation for Europe will be resolved anytime soon…China has yet to come out of…its zero-Covid policy. [The energy crisis] is not only an issue when it comes to keeping homes warm, it is also a very important factor in determining the outlook for food inflation next year,” Baig said.

“The problem is in Europe, but it’s affecting energy prices around the world,” he said, adding that supply-side inflation is most likely to remain elevated through 2023. with “negative implications” for the global economy.

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The economist said there was “room and a need” for Asian countries to support their economies through fiscal policies.

“On the monetary policy side, unfortunately there is no respite. They need to raise rates to slow economies down to keep the current account on a sustainable basis,” Baig said.

“That’s why even a country like India, which is the darling of investors these days, still faces substantial headwinds until 2023. And of course, the other big headwind in Asia is China, for its own idiosyncratic reasons,” he said.

Separately, IMA Asia’s Richard Martin told CNBC that the dollar is approaching its peak. IMA’s chief executive said on Thursday that central banks in top emerging economies would continue to raise interest rates in anticipation of further tightening in the United States.

“And … as they close that yield gap, the additional 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 6-8% over the past year, to continue falling. He predicted that these currencies would start bouncing back to their previous levels early next year.

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