Asia’s most externally vulnerable economies – India, Indonesia and the Philippines – have just taken a punch with the oil prices hitting 3.5-year highs. Not only do these countries run the biggest current account deficits of Asia’s major economies, but they are also among region’s most voracious oil importers. If oil prices stay at their current levels of around $75 a barrel, projections for inflation, growth, budget and trade deficits could be missed, increasing selling pressure on the trio’s currencies, stocks and bonds – already among Asia’s worst performers – and potentially forcing their central banks to raise interest rates sooner than they otherwise would. Higher rates could, in turn, hurt growth and budgets, creating a self-feeding loop that further erodes confidence in local assets. In its projections for growth and inflation, Indonesia’s central bank said it works on an assumption of oil at $60 a barrel. The Philippines’ said it works with $55-$70, while India, according to two finance ministry sources, works with $65. These averages might still be attained if oil prices drop back, but the recent run-up has prompted many analysts to call an end to the oil market slump that started in 2014 and prompted hints that policymakers’ assumptions are changing. – Reuters

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