Who's Afraid of Rising Inflation and Loan Rates?

by Royal Bank of Scotland, 18 May 2012

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commodity prices inflation interest rates

Country-level inflation

However, as mentioned earlier in the report, intra-regional differences do exist and the pace of inflation correction will also vary. Our analysis shows that India, Indonesia and Singapore are the three main laggards to the regional trend of moderating inflation largely due to idiosyncratic factors.

In India, rupee depreciation has slowed the pace of correction in inflation, even though growth has come off sharply. For example, oil prices in local currency terms have remained elevated relative to dollar denominated prices. This inconsistency should even out as the currency stabilises. Moreover, the fall in international crude prices will reduce the degree of domestic price adjustment, most likely due in June.

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Singapore’s inflation dynamics are probably more unique. They are predominantly related to the government’s decision to reduce the dependency on low earning foreign workers by both lowering administrative ceilings on foreign worker dependency ratios and increasing levies.

In Singapore, employers are required to pay an administrative levy to the government for hiring foreign workers. Indonesia’s slow decline is more simply related to the persistence of strong domestic demand conditions.

No monetary easing

This on-going and expected decline in inflation is however, unlikely to release much space for monetary easing. The problem is that most central banks were slow to normalise rates post the global crisis and as therefore, the incremental latitude is limited.

On Taylor rule based estimates, admittedly not a perfect measure for a developing economy, current policy rates remain lower than implied levels. Moreover, real rates remain significantly lower than pre-crisis levels and as such are supportive of growth.

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The economic turmoil that

Submitted by Aakash Chatterjee on 8 February 2013 - 5:52pm

The economic turmoil that the world economy has been through was severe and has impacted several sectors. From big business ventures to small ones have been going through a tough time. Those who are planning to launch new ventures they are finding it hard to arrange financial back up, however they should go for Yellowstone Capital which would be a much more convenient option.

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