In an interview with ET Now, David Carbon , Head of Economics and Currency Research, DBS , talks about China’s rate hike, asset bubble, inflation and currency .Excerpts :
China has raised the interest rates for the first time after 3 years. How much do you expect this to cool the economy? Do you think that this was a step in the right direction?
It absolutely was a step in a right direction. I think a couple of months back everybody was talking about the China slowdown. We are looking too closely at the supply side and the manufacturing sector PMI and so on. Our view has always been that if you look at the demand side of the Chinese economy, the growth is very-very strong, whether you are looking at consumption or investment figures or the loan growth figures, everything is very-very strong. So this is a long overdo rate hike.
In our view, there will be more currency appreciation moving forward. We think we will gather pace and that will be part of the monetary tightening as well. Basically everybody across Asia is a little bit still, a little bit behind the curve in terms of getting monetary policy back to normal and China is perhaps the country which is the farthest behind the curve. So we have got a fair amount, a more tightening to go from the Chinese.
Do you sense an asset bubble, a real estate bubble out there? The talk is getting more headwind again.
No, I do not think so. I mean we have got small pockets in all the countries in Asia, not just China. We were looking at little pockets in Korea, Taiwan, Singapore, Hong Kong, and India. You name at their little property pockets where authorities need to keep an eye on things, but we are at the start here of a long period of a strong growth and a long period of capital inflows and so on. And basically we were at very early days here. So we are quite optimistic about the outlook.
What about the growth numbers and the inflation figures that came out for China? What do you think it would be the long term ramifications of where the region is headed and how these rate hikes would impact growth?
Well, we were looking for multiyear period in Aisa here in the next 3-4-5 years of above average growth and this is remarkable in the sense that the Asian growth is going to be above average growth and the G3, the US, Europe, Japan and so on is going to be a little bit below average, not terribly. So in our view somewhat below average for the G3 and above average for Asia.
Much of this is coming out of the fact that Asia is now driving its own growth and putting a stronger, a bigger weight on the Asian foot and we are also getting a lot of capital inflows into the region. It is going to be driving stronger growth in the region as we move forward. So every country in the region, whether it is China or Thailand or Korea or India, is going to be dealing with how do we tight the monetary conditions when we have a lot of capital inflows into the region and growth is picking up. It is going to b
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