Masatsugu Asakawa, President of the Asian Development Bank (ADB).
(Reuters file photo)
[Financial Channel/Comprehensive Report] Asian Development Bank (ADB) President Masatsugu Asakawa said that if the U.S. rapidly raises interest rates and the risk of a soaring dollar triggers a debt crisis, emerging Asian countries may choose capital controls and foreign exchange market interventions.
Asakawa said Asian policymakers may also need to speed up discussions on strengthening the region's financial safety net due to volatile investment flows, Reuters reported.
Asakawa then mentioned that while Asia is still some way from a crisis, many emerging countries are being forced to raise interest rates to stem capital outflows at the cost of slowing economies.
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Unless these countries raise interest rates, the currencies of emerging Asian economies will depreciate and the huge debts borrowed in dollars will balloon, Asakawa said.
The very fast pace of currency normalization by the US Federal Reserve this time has already caused some turmoil in emerging capital markets. With the US raising interest rates, emerging economies have no choice but to raise interest rates to avoid excessive depreciation of their local currencies.
The impact of the rapid appreciation of the United States has been clearly reflected in Asia.
Japan intervened in the foreign exchange market last Thursday (22nd), India, Thailand and Singapore have been using dollar reserves to support their domestic currencies, and South Korea announced that it will limit dollar purchases in the spot market to support the Korean won.
Equity and bond markets in some regions have also resorted to various forms of intervention to moderate volatility.
The Asian Development Bank will hold its annual meeting from today (26th) to 30th. Asakawa said that risks to Asia's economic outlook, such as the slowdown in China's economic growth, the impact of rapid interest rate hikes in the United States, and post-pandemic challenges such as food security, will affect the become a key topic of discussion at the meeting.
Asakawa mentioned that many emerging Asian economies have sufficient buffers, including ample account surpluses and foreign exchange reserves, to weather another crisis.
Asakawa added that as a last resort, they could use non-monetary policy tools such as capital controls, while some emerging countries may intervene to prevent currency devaluation.
Asian policymakers must also prepare for volatile market moves that could destabilize the regional economy, Asakawa said.
In the long run, emerging Asian countries can reduce their exposure to market volatility by raising taxes and reducing their reliance on overseas borrowing.
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