Philippines and India most vulnerable to a recurrence of a ‘progressive tantrum’ – S&P



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REUTERS

EMERGING ASIAN ECONOMIES are “better protected” against a possible recurrence of “progressive tantrums”, although India and the Philippines are identified as “more vulnerable”, according to S&P Global Ratings.

“The recovery in emerging Asian economies should support rising US yields.Floridaeffects an improvement in growth prospects andFloridaaction rather than a currency shock ”, S&P Asia-Pacificto bec, said chief economist Shaun Roache.

A “taper tantrum” occurred in 2013 when the US Federal Reserve signaled that it would begin to reverse its quantitative easing. This created panic over rising borrowing costs, prompting strong exits from emerging markets and leaving central banks with the decision to raise interest rates.

Yields on US Treasuries have risen in recent weeks. The local market has continued as it is appreciated in higher yields of Treasury bills, as well as of time deposits and central bank securities.

“In our view, yields are rising in response to hopes that better economic growth will drive inflation up. Asia is often one of the main beneficiaries of improved global growth. We also believe that Asian economies are better protected against external shocks than they were during the 2013 tantrum. Initial conditions are reinforced by current account surpluses, which are low inFlorida(for the most part), higher real interest rates, and larger foreign exchange reservesffers, ”S&P said.

However, S&P said risks remain to the Asian recovery, especially “if markets decide that the Fed is underestimating byFloridarisk of action, and would have to increase policy rates to combat the threat. “

“In our opinion, India and the Philippines are the most vulnerable at the current juncture. Both economies have seen an increase in inflation in recent months. Real policy rates are below long-term average levels, eroding yield reserves. Capital can come out faster and central banks may have to do so by raising official rates. A mitigating factor for both countries is that current accounts are stronger relative to normal levels, ”S&P said.

Meanwhile, Louis Kuijs, director of Asian economics at Oxford Economics, said recent performance increases in Southeast Asia are “much softer” than during the “taper tantrum” in 2013, “reflecting better fundamentals: Positions noticeably stronger current account accounts, higher foreign exchange reserves and a larger domestic investor base. ”

Kuijs said Southeast Asia, India, Hong Kong and Australia will likely feel further upward pressure if US rates continue to rise substantially. He added that Asia-Pacific exchange rates are also likely to depreciate further.

The Governor of Bangko Sentral ng Pilipinas (BSP), Benjamin E. Diokno, said that the central bank will remain accommodative, noting that “they are not willing to tighten monetary policy at this time”, as inFloridaThe rally in the stock is only temporary and is due to pressure from the supply side.

Inflation in the Philippines reached 4.7% in February, already above the central bank’s 2-4% target mainly due to higher food and oil prices. The key policy rate is at an all-time low of 2%.

Diokno has said that they will carefully evaluate when they should relax. policy measures to ensure to befinancial stability.

The Monetary Board will have its second policy-setting meeting on March 25. It maintained its official interest rates on February 11, but increased its official interest rates.Floridaation expected this year at 4% from 3.2% previously. – Luz Wendy T. Noble



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