Hikes in interest rate expected soon: Moody's

Central banks in India, China and South Korea are closely monitoring the emerging inflationary pressures on their economies and hikes in interest rates could be expected across the Asia-Pacific region after Australia raised key interest rates, says Moody's economy.com.     

Australia was the first G20 country to raise interest rates on Tuesday, with the country's apex bank declaring the recession to be over. The Reserve Bank of Australia (RBA) raised the official cash rate 25 basis points to 3.25 per cent.     

"The RBA's interest rate increase this week isl ikely to kick off rate hikes across the region in coming months. Speculation regarding imminent interest rate movements in the Asia-Pacific region has been growing," economy.com said in a report.     

The ratings agency Moody's arm said apex banks in China, India and South Korea are keeping "a close watch on rising economic activity and emerging inflation pressures."    

The agnecy's observation comes ahead of the Reserve Bank of India's quarterly review of monetary policy on October 27.    

Inflation was close to one per cent by third week of September and there are expectations it may breach 6 per cent by the end of the current fiscal.

RBI Governor D Subbarao earlier this week had said the central bank is faced with a dilemma of whether or not withdraw monetary stimulus, since economic recovery is "incipient" and inflationary expectations are present in the economy.     

Economy.com added as sentiment in global financial markets improves and signs emerge that global growth is resuming, it is inevitable that central banks in the region will raise interest rates from their current emergency levels.    

It said though the nascent recovery in domestic demand, industrial production and exports across the region is encouraging, uncertainty regarding the global economic outlook remains pervasive.

According to Moody's, gradual pulling back of the stimulus will be important in ensuring the sustainability of economic growth across the region, and in keeping a lid on inflation pressures during the recovery.