Asian countries must tame the current waves of the coronavirus outbreak to prepare their economies for future interest rate hikes by the United States. Federal ReserveAn economist said on Monday.
Federal Reserve officials noted this last week Interest rate hike could come as early as 2023, distracting from earlier comments in March that the US central bank does not expect increases until at least 2024.
Higher interest rates in the United States would tempt investors from abroad, and central banks in other countries may be forced to raise rates in defense. Raising interest rates helps countries prevent too much capital from leaving their economies, but raising interest rates too quickly increases the risks of an economic slowdown.
“Asian countries need to get Covid under control so that once the Fed starts raising interest rates, the economies here are in good shape and able to handle this turnaround,” said Steve Cochrane, chief Asia Pacific economist at Moody’s Analytics. CNBCSquawk Box dear. ”
Cochrane expected the US central bank to raise interest rates by 25 basis points every quarter from 2023 onwards. The so-called dot plot of individual Fed members’ expectations indicated two increases that year.
Several economies in Asia, including Japan, Taiwan and Malaysia, have seen a renewed increase in Covid cases in recent months, forcing authorities to impose stricter social distancing measures. New waves of infection are coming Vaccination progress in the region lags behind the United States and Europe.
The World Bank said in a report: This month, economic output in two-thirds of countries in East Asia and the Pacific will remain below pre-pandemic levels until 2022. Factors holding back potential economic growth in those countries include prolonged Covid-19 outbreaks and a collapse in global tourism, the bank said.
Cochran noted that the COVID-19 outbreak across the region is “stopping” domestic demand and keeping inflation low.
The economist said many Asian countries, including China, South Korea and Singapore, are ramping up vaccinations against Covid. “That sounds good,” he said, “but this has to go on.”
Cochrane added that other countries, including Thailand, Indonesia and the Philippines, are not effectively controlling the outbreak and do not have robust vaccination programs in place yet.
CNBC’s Jeff Cox contributed to this report.