Asia can withstand higher US interest rates and risks of capital outflows and weaker currencies against the US dollar are exaggerated, according to the Asian Development Bank.
“Asia is in a pretty good shape to weather this looming US rate hike,” Donghyun Park, ADB principal economist in Manila, told Bloomberg.
“Emerging markets especially in Asia have relatively robust, strong economic and structural fundamentals. I’m quite optimistic that the effect will be subdued and muted. The risks are quite exaggerated, overstated.”
Central banks in the region have strengthened defenses by building up foreign-exchange reserves and current-account positions since the sell-off that roiled developing nations during the so-called taper tantrum in 2013 when the US Federal Reserve signaled it would wind down bond purchases.
The more vulnerable emerging markets are outside Asia, including Brazil, Russia, and Turkey, Park said.
While policymakers in Asia are unlikely to follow the Federal Reserve in raising rates, they would probably refrain from unleashing more stimulus, Park said.
“The growth-supporting power of central banks will be more limited in Asia,” he said.
“They would probably stay put rather than cut interest rates further.”
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