The reflation trade that is lifting US yields will not hit Asian emerging markets financial conditions and growth outlook as much as during the taper tantrum of 2013, S & P Global Ratings said on Wednesday. The recovery across Asia s emerging economies should withstand rising US yields so long as this reflects an improving growth outlook and reflation rather than a monetary shock, said Shaun Roache, Asia Pacific Chief Economist at S & P. In 2013, US yields leaped after the Federal Reserve indicated it will begin unwinding its quantitative easing programme. The resulting panic over rising credit costs led to sharp outflow from emerging markets, including Asia s, and forced central banks to hike interest rates.
Emerging Asia s recovery can withstand reflation trade: S&P ANI | Updated: Mar 17, 2021 10:49 IST The recovery across Asia s emerging economies should withstand rising US yields so long as this reflects an improving growth outlook and reflation rather than a monetary shock, said Shaun Roache, Asia Pacific Chief Economist at S&P.
In 2013, US yields leaped after the Federal Reserve indicated it will begin unwinding its quantitative easing programme. The resulting panic over rising credit costs led to sharp outflow from emerging markets, including Asia s, and forced central banks to hike interest rates. Not all yield shocks are created equal, said Roache.
Asian economies are better prepared to face a taper tantrum-like incident, but countries like India and the Philippines stand “the most vulnerable at the current juncture,” global rating agency S&P said in a report on Wednesday. “Both economies have seen inflation rise in recent months. Real policy rates are below long-run average levels, eroding the return buffers. Capital may be quicker to leave and the central banks may have to by raising policy rates,” the rating agency said. However, it noted, one mitigating factor for both countries is that current accounts are stronger relative to normal levels . The Reserve Bank of India (RBI) has lowered policy rates by 250 basis points since January 2019, of which 115 basis points were done after the nation went into a lockdown due to the pandemic. Given the weak economic recovery, analysts expect the rates to remain soft at least in the current year.