New Delhi: Monetary policy tightening through interest rate hikes is nearing its end in Asia, Morgan Stanley said, as inflation in the region is mostly cost-driven—meaning supply chain—in nature. “It is informed by our view that ‘the nature of inflation is most likely cost-driven and hence central banks’ No need to take rates deep into restrictive territory.’ Wai Kam, Kyusha Peng and Jonathan Cheung.It said the data showed that inflation in Asia had indeed peaked in late 2022.
In recent months, it said they have seen inflation data decline, and headline inflation has already peaked in nine out of 12 economies in the region. Central banks will need to lift rates further, or over a longer period of time, given that the Fed is now expected to raise rates well into May,” it warned.
The US Federal Reserve approved a quarter point interest rate hike earlier this month. The US central bank’s policy rate is now in the target range of 4.50-4.75 per cent, the highest level in 15 years, and notably, it was near zero in the early part of 2022. Raising interest rates is a monetary policy tool. It usually helps to reduce demand in the economy, which leads to a decline in the rate of inflation.
In India too, the Monetary Policy Committee (MPC) of the RBI decided to increase the repo rate, the rate at which the RBI lends money to all commercial banks, by 25 basis points to 6.5 per cent. Since May last year, the RBI has increased the short-term lending rate by 250 basis points to control inflation.
India’s retail inflation was above the RBI’s six per cent target for three consecutive quarters and managed to come back to the RBI’s comfort zone in November 2022. The consumer price index was pegged at 6.52 percent.