Kevin Daly, a portfolio manager at Aberdeen Asset Management Plc. in London, comments on China’s monetary policy outlook and Indonesia’s rating outlook. Daly, who helps manage $6.5 billion in emerging-market funds, spoke today at a briefing in Hong Kong. The People’s Bank of China yesterday lifted the one-year deposit and lending rates by a quarter of a percentage point each to 3.5 percent and 6.56 percent respectively.
“China will continue to tighten policy if inflation remains on the high side. If it remains at a 6 and 6.5 percent range for July, we’re likely to see further tightening. You are probably back to another 50 basis points hike in the required reserve ratio. Policy rates probably not because obviously they want to drain more liquidity from the financial sector. It’s going to be very data-dependent after August.”
You will see inflation peaking in the next several months probably at around 6.5 percent. We’re likely to see a pause in tightening measures and that will start to provide some support to the market. We have less concern about growth. In some way, adjustment is underway in China. We see growth as probably coming out at around 8.5 percent this year.’’
“Indonesia has one of the lowest fiscal deficit positions among the emerging countries. Its fiscal balance remains very strong and there’s a big increase in foreign direct investment as well. It’s a resource-rich country, which is benefiting from not just the mix of commodities but also the coal shortage in China and India. What’s probably holding back the upgrade are the subsidies, which stand at about 3 percent of its GDP. The expectation is you are likely to see some move on subsidies over the next year. That would be a signal for rating agencies that this is a positive sign.”
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