Asian central banks to start hiking rate in 2010

Asian central banks are expected to raise their interest rates earlier next year, as inflation rates are likely to escalate following a faster economic recovery than was anticipated, Citi says.

"With economic data out of Asia and the US looking more positive, and Asia confirming a 'V' shaped trade cycle model,  we've revised our monetary policy to account for earlier and larger hikes in the region's growth," Citi analyst Johanna Chua said in a statement Tuesday.
 
The Central banks of Korea and India will likely hike interest rates the most, by about 125 basis points in 2010, while other counties are planning increases of between 50 and 100 basis points. Many countries will start hiking rates in the second quarter of 2010 as compared to mid-2010, as was planned earlier, she said.

Bank Indonesia (BI) may raise its rate between 75 and 100 basis points in 2010, she added, following a drop by 25 basis points this year that effectively reduced the BI rate to 6.25 percent.

"We stand by our prediction that BI may still cut its rate by 25 basis points one last time, as despite increases in growth, the investment upturn has remained subdued, and Indonesia’s credit risk premium has been re-priced, giving BI a bit more flexibility to lower rates without resulting in significant foreign exchange volatility," she said.

Johanna also said Asian central banks would not hike rates this year, despite predictions that inflation will start to increase by the last quarter of 2009 and into 2010 as the "output gap narrows".