STOCK MARKET WATCH -- Wednesday, 26 December 2012

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18. India Joins Indonesia Facing Heightened Policy Dilemma: Economy

http://www.bloomberg.com/news/2012-12-25/india-joins-indonesia-in-juggling-growth-price-risks-in-2013.html

Central banks in Indonesia and India, with the worst-performing currencies among Asian emerging markets this year, will face more challenges in 2013 as they balance inflation risks with the need to boost growth.

The Reserve Bank of India must deal with “conflicting cues” from elevated prices and an economic slowdown, complicating policy decisions even after it recently signaled there is room to lower interest rates, Mizuho Corporate Bank Ltd. economist Vishnu Varathan said. Indonesia’s inflation may be at the upper end of the central bank’s targeted range, forcing it to raise borrowing costs “aggressively,” according to HSBC Holdings Plc.

Demand for higher wages, reduced government subsidies and greater capital inflows may drive up price pressures in the world’s fastest-growing region. Bank Indonesia refrained from raising rates this year even as the currency slumped and costs accelerated, while delayed reforms and infrastructure bottlenecks in India have spurred the most rapid inflation among the largest emerging nations.

“Central banks will have to strike a delicate balance between tightening policy, allowing stronger exchange rates and looking past inflation humps,” Varathan said in a Bloomberg survey of 15 economists on challenges facing policy makers. “Inflationary pressures may be emerging in a few quarters, whereas growth may not be recovering quickly and broadly enough to justify shifting to decisive policy tightening.”