Emerging Asia’s economic growth picked up at the end of last year while inflation pressures have increased. More central banks have indicated the need to tighten monetary policy and, over the next month, we expect rates to move up again in Australia and that India will hike policy rates for the first time. The markets will worry for a while about the damage higher interest rates could do to growth and risk aversion is likely to climb further, hitting Asian currencies and Asian stocks. However, it is a good sign that the authorities are now adjusting policy to ensure that inflation does not become a big problem and that asset bubbles do not develop. It is very unlikely that Asia’s upswings will stall.
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