Asian countries have to control the current waves of the coronavirus outbreak to prepare their economies for future rate hikes from the U.S. Federal Reserve, an economist said Monday.
Fed officials indicated last week that interest rate hikes could come as early as 2023, rather than earlier comments in March that said the US central bank was not expecting any hike until at least 2024.
Higher US rates would attract foreign investors, and other countries’ central banks may have to raise their own rates in defense. Rising interest rates could help countries prevent too much capital from leaving their economies, but raising rates too quickly increases the risk of an economic slowdown.
“Asian countries have to get Covid under control so that once the Federal Reserve starts raising interest rates, the economies here are in a good position and can handle the transition as well,” said Steve Cochrane, chief economist for Asia and the Pacific from Moody’s Analytics. CNBC’s “Squawk Box Asia”.
Cochrane predicted that the US central bank could raise interest rates by 25 basis points once every quarter beginning in 2023. The so-called dot plot of individual Fed member expectations pointed to two increases that anus.
Many Asian economies, including Japan, Taiwan and Malaysia, have seen a further increase in Covid cases in recent months, forcing authorities to impose stricter social distancing measures. New waves of infections come as vaccination progress in the region lags behind the United States and Europe.
The World Bank said in a report This month, economic output in two-thirds of East Asian and Pacific countries will remain below pre-pandemic levels through 2022. Factors reducing potential economic growth in those countries include widespread Covid outbreaks and a collapse in tourism. global, the bank said.
Cochrane noted that Covid outbreaks in the region are “holding back” domestic demand and keeping inflation subdued.
The economist said that several Asian countries, including China, South Korea and Singapore, are increasing vaccines against Covid. “That looks good, but that has to keep going,” he said.
But other countries, including Thailand, Indonesia and the Philippines, have not effectively controlled the outbreak and do not yet have robust vaccination programs, Cochrane added.
– CNBC’s Jeff Cox contributed to this report.