Currency swing spells fears in Asia-Pacific
Currency swing spells fears in Asia-Pacific
By Tim Cribb
HONG KONG (AFP): As Tokyo and Washington struggle to resolve the yen-dollar crisis, other Asia-Pacific economies are becoming worried about the impact on their current accounts and inflation.
While the depreciation of the dollar is likely to boost the competitiveness of the region's exports, it would also make imports more expensive and that translates into higher prices for consumers.
In Hong Kong, where inflation is running at around nine percent, analysts said the currency's official peg to the U.S. dollar exposes the territory to "imported inflation" -- price rises forced upon it by external factors, such as the yen's appreciation.
Jim Wong, an economist at Hong Kong and Shanghai Banking Corp., said that about 25 percent of imported consumer goods come from Japan, and while price increases were being absorbed in the short term, consumers would have to pay if the dollar fails to rebound.
Rory Robertson, senior economist at Bankers Trust Australia, said the recent fall of the Australian dollar as it followed the U.S. unit down would push up import prices and renew pressure on firms to pass on the cost to final prices.
Analyzing recent falls in the Australian dollar and its effect on prices, he estimated that a 10 percent drop in the value of the currency against those of major trading partners would translate to a 1.0-to-1.5 percentage point rise in inflation after a year.
Reserve Bank Governor Bernie Fraser has said he aims to keep underlying inflation, measured at 2.1 percent in 1994, at two-to- three percent.
He recently warned: "Downward pressure on the exchange rate, if it were to persist, would add to inflationary pressures and force the authorities into tough policy measures."
In Malaysia, the ringgit has declined 20 percent against the yen since January, triggering fears of an larger current account deficit with Japan.
"Malaysia has to pay more for imports and we are not sure if exports can be spurred," said Mustafa Mohd Noor, chief economist at Arab Malaysian Securities Sdn. Bhd.
Malaysia had a 21.1 billion ringgit (US$8.57 billion) deficit with Japan last year and, if the yen continued its surge, that was likely to grow a further three billion ringgit, Mustafa said.
Malaysia has also been hit by the falling U.S. dollar as its exports to Japan are mainly commodities denominated in dollars.
In Thailand, where the baht has appreciated 2.6 percent against the dollar and fallen 20 percent against the yen, there were also inflation worries.
Jakraphand Phuthayanonda, treasurer of Citibank Bangkok, said there would be no "sudden impact" in the short term, but a long- term impact could not be ruled out if the baht remained strong.
He pointed out that the Bank of Thailand (BOT) has its own measures to control inflation and prevent the economy overheating.
Singapore Finance Minister Richard Hu said earlier this week that the Monetary Authority of Singapore had to intervene quite actively to support the U.S. dollar to prevent the local currency from rising too rapidly.
"And we have to continue to do this. The consequence of this is that it then drives liquidity in the market up and then depresses interest rates. If this persists for any length of time, it causes asset inflation and you've got to balance it," Hu warned.
The Singapore dollar has appreciated by more than three percent against its U.S. counterpart this year, an increase that came on top of a strong 10 percent rise last year.
Indonesian analyst Rizal Ramli, of the private Econit advisory group, said the dollar's depreciation would add to inflationary pressure by increasing the cost of imports, especially capital goods, which came mainly from Japan.
The Philippines current account deficit meanwhile "may adversely be affected" since the depreciating dollar could strengthen the peso and affect competitiveness of the country's exports, said Mario Lamberte, vice-president of the semi-official Philippine Institute for Development Studies.
He added some Philippine industries, such as automotive assemblers, rely on Japanese imports, and higher prices could fuel the current account deficit.
However, the depreciating dollar "would impact less" on inflation in the Philippines since such products as automotive parts imported from Japan have less weight in the calculation of the rate, he said.