Exchange rate weakness amid a strong US dollar is a bigger concern for Asia than inflation, Taimur Baig, chief executive of DBS Bank in Singapore, told CNBC on Thursday.
“We’re not particularly concerned about the inflationary policies, but the exchange rate weakness, the dollar’s drying up of liquidity, those things [are] a bigger problem [and issues such as] in terms of balance of payments,” Baig told CNBC’s Street Signs Asia.
“If input prices for next year do indeed increase, even a country like India – which produces a lot of food for itself and exports to the rest of the world – would start to get a little uncertain about the food supply for 2023,” he said. .
Baig, who is also chief economist at DBS, said a global energy crisis that fuels inflation could lead to a dismal winter.
“I find it very difficult to see how the gas situation will be resolved for Europe anytime soon… China has yet to come out of… its zero Covid policy. [The energy crisis] is not only an issue related to keeping homes warm, but also a very important factor in determining the outlook for food inflation next year,” Baig said.
“The problem is in Europe, but it’s affecting energy prices around the world,” he said, adding that supply-side inflation is very likely to remain high into 2023, with “adverse effects” on the global economy.
The economist said there is “room and need” for Asian countries to support their economies through fiscal policy.
“Unfortunately, there is no respite on the monetary policy side. They need to raise interest rates to slow the economy and keep the current account on a sustainable basis,” Baig said.
“That’s why even a country like India, which is a darling of investors these days, I believe still faces significant headwinds into 2023. And of course the other big headwind in Asia is China, for its own idiosyncratic reasons,” he said.
Separately, IMA Asia’s Richard Martin told CNBC that the dollar is nearing its peak. The IMA chief said on Thursday that central banks in better emerging markets will continue to hike interest rates in anticipation of further US tightening
“And…if they close that yield gap, the additional push into US dollar assets will start to wear off,” Martin told CNBC’s Street Signs Asia.
He added that he does not expect emerging market currencies, some of which have fallen 6% to 8% over the past year, to fall any further. He predicted that these currencies would start recovering to their previous levels early next year.