It's team's relentless is it anything which could possibly right now halt
this. I'm not going to say King Dollar but I
have. I have said it now anyway.
The strength of the dollar. In terms of the framework on the donor
group what are extreme highlights is that there are two key things that they
are watching. One is that they want the Fed rate hike
expectations to peak. And second they want the rest of the
world's growth through bottom out. So now I think on the Fed rate hike
expectations as far as our forecast second son it is pretty much there.
But I think the bigger story would be when do we see the rest of the world
growth bottoming out. And in terms of our team's forecast we
have that happening in the first quarter of next year.
That is going to be led by China. And China's outlook is pretty much
dependent on whether and when they make that transition to living with Covid.
And you're saying this is by far the most important policy tool that they
have. Right.
Right. How quickly do you think you know things
could improve once they do reopen the borders.
So we think that you know they evolve. They think that policy decision and two
steps. So after the party Congress we think
they will guide the nation in terms of having to make that transition.
They could sort of make a proposition by by the fact that look now the White
House has diluted itself. They have the vaccines.
They have the forced infection treatment.
They have made the arrangement in terms of the hospital capacity and therefore
they need to make the transition. So we would hear the policy statements
indicating that they need to make that transition in around November December.
We would also be watching for additional new campaign on picking up vaccination
rate for elderly population and then make that broader transition more
nationwide sometime in March April. What we are also watching very closely
is whether they are going to allow the AMA any vaccine to be distributed within
their own country. We've already heard over the weekend as
you guys have covered on Bloomberg that it has been launched in for emergency
purposes in Indonesia Japan.
OK. You mentioned Indonesia.
You mentioned the region here. Well you know we look at Southeast Asia
in particular. You see the depreciation of the various
currencies. But on a trade weighted basis this is
not really playing out isn't it. Because I mean ultimately these goods
that are exploded are cheaper in dollar terms.
Yeah I know. Essentially the reason why we think that
this is not 2013 or nineteen ninety seven for Asia is because the macro
stability indicators are in a pretty good shape.
So unlike 2013 for example which is the recent cycle before that there had been
huge misallocation in Asia. Most governments had taken up large
fiscal expansion. Central banks were running negative real
interest rates current account deficits were widening and inflation was rising.
So we don't have that kind of a situation right now.
We do have some rising inflation but that has been largely driven by higher
commodity prices rather than domestic misallocation within Asia.
So that cities and why you are seeing that Asian currencies while the
depreciating against the dollar on a trade weighted basis they are pretty
much flat in this cycle compared to what you're seeing in 2013 or 1997.
So that leaves a lot of still questions about why central banks in this region
can do right. Is it just fighting a losing battle by
hiking rates continuously or are they going to do something more to try to
stabilize their currencies. But we think that the central banks in
the region have now gained some monetary policy independence and they're going to
take that decision on the basis of domestic growth and inflation dynamics
rather than currency depreciation. Now of course currency their position
does have some effect on inflation. So to that extent they have to consider
currency depreciation. But to the extent to which you know our
analysis shows that the pass through of exchange rate depreciation is not that
significant we think the bulk of the policy decision is going to be based on
domestic growth dynamic. And considering that reaching Asian
central banks will be taking publicity it's much closer to much closer to a
neutral rate. Rather than having to worry too deep
restrictive territory like what we're seeing in the US.
And the side effects of that will be that the currencies will be
depreciating. But again it's going to be much more
manageable compared to what you're seeing in Europe and the UK.
I was going to get there. Should I expect that the dollar pain to
to create a little bit more I guess of a challenge for it for Diane versus Ben.
Yeah it's one of the currencies are concerned.
Yeah. Our teams are expecting some further
weakness in Asian currencies and that's their mindset on the fact that they're
called for dollar idea. Why is that a revised to 1 1 8 by
yearend. And so there will be a 10 impact on
Asian currencies and we are expecting modest appreciation across the region.