The conundrum is spreading to Asia as well. While the continent is blessed with strong domestic demand, lower benchmark rates than other emerging-market regions and softer inflation, they remain vulnerable to capital outflows on account of deeply negative real yields. Countries in China’s neighborhood are also sensitive to growth hiccups in the world’s second-biggest economy.
South Korea’s monetary-policy board was divided last month over when to halt the tightening cycle. Of its seven members, three wanted to stop after another 25 basis-point increase, two wanted to continue beyond that level, and one said enough had already been done. This dispersion of views underscores how tricky it is to gauge a terminal rate for emerging economies when the Fed isn’t done figuring out a peak. Meanwhile, officials dismissed as premature speculation forecasts by Citigroup Inc. and Nomura Holdings for rate cuts to begin as early as mid-2023.
In India, year-on-year economic growth more than halved to 6.3% in the latest quarter even as consumer-price growth remained above policymakers’ upper tolerance level. The nation was a laggard in raising borrowing costs and has cumulatively added only 190 basis points to its repurchase rate. This does leave room for further tightening, but could undermine its growth ambitions. The Reserve Bank of India’s policy path beyond a softer hike in December is a coin toss.
The need to balance between tackling inflation and sustaining economic activity will be seen across the world next year, but the dilemma has already arrived in Asia, Carlos Casanova, a senior economist at UBP SA, told Bloomberg Television.
All told, the clamor of a rate pause is only getting louder in emerging markets, underscoring a fatigue with hiking cycles. For instance, in Poland, the latest data showed a softer reading for the first time in eight months, and the arguments for an end to tightening have resurfaced at once.
“The scope for additional rate hikes is narrow, but strong commitment to leaving rates unchanged at a time of high inflationary pressure seems premature and inflexible,” Dan Bucsa, UniCredit SpA’s chief economist for central and eastern Europe, wrote in a note. “Central banks are committing too soon to ending rate hikes.”
--With assistance from Selcuk Gokoluk and Maria Elena Vizcaino.
This article was provided by Bloomberg News.