ADB head sees Asia as resilient to US rate hikes

Asian countries can cope with interest rate hikes in the US as long as the moves are gradual and reflect US economic fundamentals, Asian Development Bank (ADB) President Takehiko Nakao said on Thursday.

Nakao’s comments came after outgoing US Federal Reserve Chair Janet Yellen told congressional leaders that the US economy has gathered steam this year and will warrant continued interest rate increases amid a strengthened global recovery.

The Manila-based lender last month flagged the risk of potential capital outflows and higher borrowing costs as the Fed begins the unwinding of a decade of aggressive monetary stimulus and continues to raise interest rates.

Nakao said stable regional currencies and sound macroeconomic and monetary policies of each country, backed by ample foreign reserves and financial safety nets such as currency swap lines, make Asia resilient to impacts from US rate hikes.

“Generally speaking, I’m not necessarily unconcerned,” said Nakao, former Japanese vice finance minister for international affairs. “But I don’t think gradual interest rate hikes that reflect strength in the US economy will have large ill effects on Asian economies.”

Nakao also said that China, Japan’s largest trading partner, will face a gradual economic slowdown as it rebalances toward a services- and consumption-led economy.