Cynthia Kim, Aradhana Aravindan

SEOUL/SINGAPORE – On Thursday, Singapore and South Korea tightened monetary policies. This was on top of the rate increases in Canada and New Zealand. Global policymakers acted quickly to stop soaring inflation derailing a fragile global economic recovery.

The four central banks tightened their policy in the last year to stop price increases caused by logistics bottlenecks driven coronavirus. However, since the conflict in Ukraine began Feb. 24, there has been an increase supply, making it more urgent for policymakers that they bring forward rate hikes.

Toru Nishihama (chief economist, Dai-ichi Life Research Institute Tokyo) stated that “We are likely to see more Asian central bank push for the timing of interest rates hikes.” While this could impact growth, it is likely that inflation will become a greater concern. Therefore, they must move towards tighter monetary policies.

Asia-Pacific economies were much slower than the U.S. or European pandemic reopenings. As such, central banks in Australia (India) and Southeast Asia saw inflation pressures as temporary, and had a greater focus on their recovery.

Singapore, South Korea, New Zealand and New Zealand were exceptions. These countries were more concerned with rising financial instability and the impact of higher import costs.

Surprise quarter of a point rate increase by the Bank of Korea was announced on Thursday.

It was expected that the bank would hold its fire as it waits for the new governor to be appointed. But, given the high inflation rates in Asia’s fourth-largest economies and the fact that they are now at their highest level in a decade, it decided not to delay.

Singapore’s policy of influencing its currency more than its interest rates was tightened for the third consecutive month. This is in response to the new Ukraine risks.

These meetings were held less than one day after Canada and New Zealand, both commodity-rich countries, raised their rates by half of a percentage point. This was their biggest hikes in over two decades.

New Zealand saw a hike that was higher than economists expected, and Canada warned of the need for more.

You don’t have to rush, you can do it slowly.

Vishnu Varathan is the head of economics at Mizuho Bank and said that Canada, South Korea and New Zealand were all part of an international group who felt there was a pressing need to combat inflation.

Varathan said that the so-called “Kokomo Club” of central banks, which aims to “get there fast and then take it slowly”, are more inclined to frontload tightening with 50 basis points hikes as a hallmark. Varathan was referring to lyrics taken from “Kokomo”, a 1988 Beach Boys hit.

He said that although larger peer institutions like the Federal Reserve Bank and European Central Bank weren’t as assertive in their postures, they were still moving in this direction.

For many countries, the challenge is that they just began to implement a solid recovery from large-scale pandemic-driven downturns. But inflation has made it difficult for them as prices have been rising and could cause further financial instability.

Even some less hawkish central bankers in Asia are under pressure to end their crisis-era policies.

The Reserve Bank of Australia recently held rates, but it removed a reference from its communication regarding being “patient”, in regards to economic conditions.

Australia’s labour market continues to be extremely tight. With unemployment at its lowest level in 13 years, markets are now expecting the first rise since the outbreak of the pandemic.

India’s central banks also held rates at record levels last week, however they signaled an intention to move away ultra-loose.

The economic effect of the Ukraine conflict has been largely seen in terms of inflation for the time being, but with food and energy prices on the rise, analysts warn that policymakers should pay attention to the potential impact on growth.

Shane Oliver is the head of investment strategies and chief economist for AMP Capital (OTC) Capital, Sydney. He compared today’s conditions to 1973’s Saudi Oil embargo, which caused a worldwide price shock.

He stated that “Central banks have this dilemma” and said, “The longer this continues, which has been going on for one year, the inflationary expectations will move higher, and inflationary prices will continue to rise, much like it did in 1970s.”