Rate hikes and more currency appreciation on the way (Dec 09)

The emerging Asia upswing is losing some momentum, as expected, but should still stay generally strong in coming quarters. The dilemma over what to do about high capital inflows will not go away, especially as policy rates will move up further across the region. We expect that India, Korea, and Indonesia will start to raise rates over the next 1-2 months. Rates in Vietnam should move up further too over the next 1-2 months, although Australia is likely to pause its tightening cycle for a while.