Wahyu Dwi Anggoro
IDXChannel - Governments and central banks in emerging East Asia need to stay vigilant to guard against potential financial risk associated with higher interest rates, according to a report by the Asian Development Bank (ADB).
Softening inflation in the past several months has allowed most central banks in the region to hold off on further interest rate hikes, and some have started lowering rates to boost economic growth. Still, elevated price pressures, a solid job market, and robust economic performance in the United States could lead to further interest rate increases by the US Federal Reserve, according to the latest issue of Asia Bond Monitor, released this week.
The recent shift away from interest rate hikes, along with sound economic fundamentals, helped support a slight improvement in financial conditions in most emerging East Asia markets between 1 June and 31 August, according to the report. Excluding the People’s Republic of China (PRC), positive investment sentiment in regional markets supported a narrowing of risk premiums, a rally in equity markets, and net foreign portfolio inflows in bond markets. In the PRC, a dimmed economic outlook weighed on domestic financial markets.
Meanwhile, interest rates in the region remained elevated. Higher borrowing costs have contributed to debt stress and bond defaults in some Asian markets over the past few months.
“Asia’s banking sector showed resilience during the recent banking turmoil in the US and Europe, but we’ve seen vulnerabilities and defaults among both public and private borrowers since last year,” said ADB Chief Economist Albert Park in a media release on Monday (11/9/2023).
