Full Report - Subregional Office for East and North-East Asia - escap

THE STATE OF INCLUSIVE AND SUSTAINABLE DEVELOPMENT IN UNCERTAIN TIMES CHAPTER 1
Figure 1.6. Policy rates in selected developing Asia-Pacific economies, 2010-February 2013
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8
7
6
5
4
3
2
1
0
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
Percentage
May-11
Jul-11
Sep-11
Nov-11
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
China
Indonesia
Philippines
Hong Kong, China
Republic of Korea
Singapore
India
Malaysia
Thailand
Source: ESCAP, based on data from CEIC Data Company Limited. Available from http://ceicdata.com/ (accessed on 30 March 2013).
Notes: The policy rates for each country include rediscount rate for China; discount window base rate for Hong Kong, China; Reserve Bank of
India repo rate for India; Bank of Indonesia month end reference rate for Indonesia; Bank of Korea base rate for the Republic of Korea; overnight
policy rate for Malaysia; repurchase rate for the Philippines; overnight repo rate for Singapore and the 1-day bilateral repurchase rate for Thailand.
Food and fuel price rises have
been exaggerated by the increasing
financialization of commodity markets
As highlighted in the ESCAP 2009 Economic and
Social Survey of Asia and the Pacific (ESCAP, 2009a),
food and fuel price rises due to concerns about
supply-related shortages have been exaggerated
by the increasing financialization of commodity
markets. Commodity assets managed by financial
investors have increased over the past decade from
less than $10 billion to $404 billion in June 2012.
Loose monetary policies of the developed world,
most notably quantitative easing (QE) in the United
States, along with the unwillingness of governments
to regulate participants in commodity markets, have
continued to draw excess funds to the commodities
markets due to the markets’ comparatively high
expected returns. The presence of financial investors,
betting on an increase in fundamental prices due
to supply shortages, serves to exaggerate price
increases.
The commencement in 2012 of a new round of
QE, referred to as QE3, is expected to contribute to
the pressure as investors are driven into all global
asset classes. In the long-term, with a perception
that food and fuel prices are on an increasing trend
due to growing global wealth and finite supply, such
commodities present a compelling investment story.
Furthermore, the participation of financial investors
is driven by herd behaviour which suffers from
periods of mass entry and withdrawal from such
markets. The resulting volatility in food prices hurts
commodity producers as the accuracy of mediumterm
decisions regarding production based on prices
is jeopardized.
Without regulations that are aimed at managing
the participation of financial investors, price rises
will continue to be exaggerated. Implementation
of legislation agreed under the Dodd-Frank Act in
the United States to limit the holdings of financial
investors in commodity markets which was set to
begin in October 2012, continues to be delayed.
As of December 2012, financial regulators have
issued only 48% of final rules mandated by the
Dodd-Frank Act of 2010, and have missed deadlines
for implementing 89% of the Act’s provisions
(Government Accountability Office, 2013).
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