Asia embroiled in inflation threat

Both Indonesia and the Philippines have raised interest rates as across the continent of Asia, countries are struggling to deal with the threat of inflation caused by the surging food and energy prices, coupled with the slowdown in the economy.

Indonesia, as South-East Asia’s biggest economy, has expanded 6.3 percent in 2007 and the government wants to keep the current pace, especially with the parliamentary and presidential elections due at the end of the year.

Bangko Sentral ng Pilipinas raised the Philippines rate by a quarter of a percentage point to 5.25 percent which is the first increase in two years, whilst the Bank Indonesia increased borrowing costs for the second consecutive month today to 8.5 percent.

Growth in Asia is slowing whilst the threat of inflation has increased. Despite this obvious trend, some Asian countries have been slow to react in changing interest rates because of the potential affect of stunting economic growth, as well as a hope that the affect of the US credit crunch is reducing, with an increase in exports soon to be on the horizon.

In Indonesia, the role of the government has been a perplexing one as since October 2005, the government more than doubled subsidised fuel prices which had a serious affect on inflation as it increased by 18 percent.

The Bank Indonesia rate is also at a three-year high of 12.75 percent although banks are seemingly able to meet their target loan growth of 20 percent this year.

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