Far East Inflation And Easy Monetary Policies Mean Negative Real Interest Rates In The Area

Inflation has risen sharply in most of the Far Eastern countries. Even those countries that had inflation rates below 3% in 2007--Singapore, Thailand, the Philippines and South Korea-- are now showing rates of inflation ranging from 4.9% to 8.35% in recent months. The first chart shows inflation rates in these four countries. Only in Malaysia, where inflation was 2.0% in 2007, is inflation still below 3.0%.

In April, China's inflation rate was 8.5% and in India, where the latest data are for March, the inflation rate was 6.0%. In other countries inflation rates are much higher. For example, in May, the inflation rates in Indonesia was 10.4% and in Vietnam, 25.3%.

In most Far Eastern countries the monetary authorities have kept interest rates steady in recent months so that most countries now have negative real interest rates. The second chart show some typical policy interest rates and the third chart shows real interest rates in China and India, which have recently become negative.