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 are not particularly worried about inflationary policy, but the weakening of the exchange rate, the drying up of dollar liquidity and the like [are] bigger issue [and issues such as] balance of payments angle,” Baig told CNBC’s “Street Signs Asia.”
“If indeed input prices rise for next year, even a country like India that produces a lot of food for itself and exports to the rest of the world will start to become somewhat food insecure by 2023,” he said. .
Baig, who is also chief economist at DBS, said a global energy crisis fueled by inflation could lead to a cold winter ahead.
“I find it very difficult to see how the gas situation for Europe will be resolved any time soon… China is still not out of the zero Covid policy. [The energy crisis] It’s not just a matter of keeping homes warm, it’s also a huge factor in determining next year’s food inflation forecast,” Baig said.
“The issue is in Europe, but it affects energy prices worldwide,” he said, adding that supply-side inflation would remain high until 2023, with “negative implications” for the global economy.
The economist said there is a “room and need” for Asian countries to support their economies through fiscal policies.
“On the monetary policy side, unfortunately, there is no respite. They have to raise interest rates to slow down economies to keep the current account on a sustainable footing,” he said.
“So a country like India, which is an investor favorite these days, will still face serious headwinds until 2023. Of course, the other big headwind in Asia is China for its own reasons,” he said.
Separately, IMA Asia’s Richard Martin told CNBC that the dollar is nearing its peak. Central banks in better emerging economies will continue to raise interest rates in anticipation of further tightening in the United States, the managing director of the IMA said on Thursday.
“And … as that yield gap closes, the additional boost to US dollar assets starts to wane,” Martin told CNBC’s Street Signs Asia.
He added that some do not expect emerging market currencies, which have depreciated 6% to 8% over the past year, to fall further. He predicted that these currencies will begin to return to their previous levels at the beginning of next year.