Photographer: Andrew Harrer/Bloomberg

Asia Is in Good Shape to Withstand Higher U.S. Rates, ADB Says

  • Emerging nations have strong economic, structural fundamentals
  • More vulnerable nations are Brazil, Russia, and Turkey

Asia is poised to withstand higher U.S. interest rates with risks of capital outflows and weaker currencies exaggerated, according to the Asian Development Bank.

“Asia is in a pretty good shape to weather this looming U.S. rate hike,” Donghyun Park, ADB principal economist in Manila, said in an interview Thursday. “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 U.S. 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 policy makers 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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