A week where inflation concerns continued to shuffle into the spotlight across Asia.
We had steady rate decisions in South Korea (despite a jump in inflation) and Indonesia, a defacto tightening in Singapore after very strong economic growth, more gloom from Japan and signs of confidence from Chinese sharemarkets.
Indonesia on Tuesday said it would allow the rupiah to rise in an effort to contain inflationary pressures.
Malaysia has also taken a tough line against inflation and is expected to raise interest rates again later this year.
South Korea has already lifted rates this year, but is relying on the strengthening won to help control price pressures.
The won is up 4.5% in the past month alone
Vietnam and Thailand have also boosted rates.
Australia hasn’t moved since last November and New Zealand has cut its official rate to soften the damage to the economy from the February 22 quake.
(The Australian dollar is up 5% from the start of January as our Reserve Bank uses it instead of another rate rise or two to control inflationary pressures).
On the other side of the Pacific Chile this week lifted official rates by 0.5% for the second month in a row to try and cap inflation.
The central bank warned rates could rise above the current 4.5%.
The peso is up 5.55 so far this year.
China has boosted rates twice this year and tightened asset reserve ratios to try and cut lending.
And they have allowed the Yuan to rise by nearly 1% against the greenback since January 1 and 4.5% since the currency peg was lifted last June.
In China, official figures out later today will show that the country’s inflation concerns have not eased, but that doesn’t seem to be as big a worry to investors, as this month’s survey from Bank of America/Merrill Lynch indicates (see separate story).
Growth will be around 9.2% – 9.5%, production will be solid, food prices will be around the 11% annual rate of February, but the government will point out that vegetable prices are now falling.
But official fuel prices have been increased, so that will push prices up for April and May.
A survey earlier this week suggested that the CPI for the year to March would be 5.2%.
But a media report in Hong Kong yesterday claimed China’s annual inflation rate in March would be 5.3% to 5.4%.
But despite the continuing western fears about China, especially its property sector (Moody’s cut its outlook for the sector yesterday, see below), Chinese investors have lost the bearishness they had late and in early 2010.
The Shanghai Composite in fact had the biggest fall of any Asian stockmarket index in 2010, but this year its gain of around 9% is the best in the region as investors become more confident about the outlook.
Moody’s Investors Service yesterday cut its outlook for the Chinese property sector to negative from stable, citing a tough operating environment for developers due to policy tightening, rising interest rates, reduced bank lending and increasing supply.
"We believe this will inevitably lead to slowing sales and pressure on profit margins and on balance sheet liquidity for some," Moody’s said in a statement.
The ratings agency anticipates proceeds from contracted sales of residential properties to fall by an average 25% to 30% in China’s first-tier cities and most second-tier cities. Developers in smaller cities are less exposed to China’s tightening measures.
That was the second ratings outlook cut this week for China.
On Tuesday Fitch Ratings downgraded the outlook on China’s long-term local currency issuer default rating to negative from stable. The country’s long-term local currency rating was affirmed by Fitch at AA-.
Fitch said, "The negative outlook reflects concern over the scale of sovereign contingent liabilities and risk to macro-financial stability arising from the very rapid pace of bank lending in recent years, especially against the backdrop of rising real estate valuations and inflation".
But that’s not worrying investors who seem to be at their most bullish for well over six months.
China’s foreign exchange reserves soared to a record $US3.0447 trillion at the end of March, the central bank said on Thursday.
The stockpile of foreign currency, already the world’s largest, were up 24.4% from a year ago.
The central bank had said previously its reserves stood at $US2.869 trillion at the end of 2010.
Singapore’s government said yesterday the economy grew more than twice the rate the market had estimated in the March quarter, prompting the central bank to announce that it would allow further gains in the dollar in the third tightening of monetary policy in a year.
As a result, the Singapore dollar jumped to a record against the greenback after the Trade Ministry reported that GDP rose at an annual rate of 23.5% (about 5.8% quarter on quarter) last quarter from the three months to December.
That’s up from 3.9% in the fourth quarter, and compares with an 11% estimat
