Interest rates decline and oil assist States to adopt a flexible policy

March 22, 2015 12:45

Emirates - direct: a report by the Asia Investment Company pointed out, that the dollar index, which tracks the performance of the US dollar against a basket of major currencies, reached 100, a level not achieved since the contract. This improvement in the currency in the last three quarters came as a result of market expectations that interest rates are rising in the United States.

The report added that directly received a copy of it, that as a result, currencies around the world, has lost much of its value against the US dollar. This decline in the euro and the Japanese yen significantly against the dollar in the last nine months, although it is consistent with the monetary policy for these regions goals, as both the European Central Bank and the Bank of Japan to take a more lenient monetary policy to stimulate their economies stagnant and fight deflationary pressures they face.

The decline in the prices deemed to be a global phenomenon, and attributes the "Asia Investment" report the main reason for the sharp decline witnessed in oil prices, especially since the latter fell to below half price rolling in July 2014.

And Inflation in Asia, excluding Japan, Indonesia and the outright decline, it is expected that this decline is exposed to more pressure in the next few months, especially after the long decline in prices of petroleum products and other consumers, and increased expectations of deflation.

And is still the main inflation without most of the goals of central banks, has been easing monetary policy conditions in the region. So far this year, eased seven Asian central banks in India, China, Indonesia, Australia, Thailand, Korea and Singapore monetary policy.

The low inflation rate would still encourage States to adopt more expansionary fiscal and monetary policies, which would impose more pressure on the currencies of these economies towards decline.

Compared with last July, are the currencies of emerging Asian countries are now more vulnerable against the dollar. This is helped by the continuing rise of the prices on the grounds that the imported goods become more expensive.

The impact of lower oil prices more than offset the impact of the devaluation of currencies. Theoretically, you may be offered a more expansionary policies. Nevertheless, it seems that the US Federal Reserve Board in the process of raising interest rates as the economy recovers. In the past week, the US central bank to delete the word "patient" of its data when referring to the timing of raising interest rates compared to the low levels currently standard.

The report finds that raising interest rates in the United States could boost cash flows from emerging Asia, and thus put pressure on the decline in their exchange rates.

The report says that central banks in Asia and emerging countries in a difficult situation, and having to decide between ease monetary policy to stimulate inflation, and the restriction policy in anticipation of the Fed raising interest rates. This trend in the region strongly depends on the timing of the Fed raising rates, and the level of oil prices, and will vary from one country to another.

Economic euphoria in America is growing at steady pace, though it is still far from the inflationary economy, while the manufacturing sector live deflationary situation, the housing market is still idle, and the levels of inflation at the lowest levels of five years ago.

Consequently, and despite what some analysts expect high rates of price no later than next June, it is unlikely to sacrifice any Federal potential for growth versus low risk of recurrence of the inflationary economy in the near term. This is more evident when you take a drop in oil prices into account expectations.

For his part, still the growth of the US oil supply, the main factor behind the glut world markets that have reduced energy prices, continues to register record levels, after rising for the tenth week in a row. In addition, it may contribute to US-Iranian agreement, easing of sanctions on the Iranian economy, increase the glut of oil markets.

Due to the length of the period of low interest rates and weak oil prices, the central bank will maintain Asia's emerging countries on lax policies. However, twice the value of their currencies could have additional risks to economies with large financial sectors.

Suffers South Korea and Malaysia at the moment of a significant decline in the value of their currencies, while Hong Kong and Singapore, they would be most affected, although their currencies exchange system Ihamaihama of fluctuations in exchange rates of major currencies. Overall, the report finds that the 2015-year-old is still positive for investment in Asia, particularly in countries least vulnerable to oil price changes and currency fluctuations, such as Thailand and the Philippines.


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