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Asia's Monetary Policy Exit Door Is Ajar
Asia's central bankers insist they have no timetable for raising interest rates. Some investors are already placing bets to the contrary.
India, the punters think, will go first. China and Korea won't be far behind.
The money's being put down in the huge, but - to its outsiders - opaque world of interest rate swaps, where the yields on two year maturities across much of Asia have risen sharply in the past few months.
This market, which had $403 trillion worth of contracts outstanding at the end of 2008, draws a range of investors, from the aggressive - hedge fund managers - to the defensive - companies looking to hedge against a change in monetary policy. About a quarter of its volume is traded in Asia.
It is telling a different story than that heard from most economists right now. In India, for example, the swap market is projecting that the Reserve Bank of India will begin raising rates - or certainly start talking seriously about doing so - in a matter of months.
The prediction is that inflation could become a concern for India's central bank far more quickly than economists currently expect.
The market's also been flagging rate rises in Korea and China for some time - with two-year swap yields climbing over a hundred basis points since the first quarter.
This should be taken in context. The swap market can overshoot mainstream expectations, and continue doing so until a central bank has clearly signaled the end of a rate cycle.
But those feeling sanguine about the pace at which Asia's central banks might start tightening, ought to consider that others are already betting very large amounts of money on higher rates being sanctioned soon.
