No clear danger in Asia as emerging markets face stress: Rajan

Emerging markets will face stress as they cope with a stronger dollar and rising interest rates but Asia appears to be insulated, for now, according to Raghuram Rajan, former governor of the Reserve Bank of India.

Tipping the Federal Reserve to raise interest rates another three times this year, Rajan said that developing economies are in a stronger position to absorb those hikes compared with the so-called taper tantrum in 2013. But he cautioned that accidents can happen.

“There will be still stresses for emerging markets, they will have to cope with a rising dollar and rising international interest rates and the flow back of capital flows,” Rajan said in an interview on Tuesday. He cited Turkey, Argentina and Brazil as risks and also highlighted Italy as a key concern.

For Asia, narrow current account deficits, moderate inflation and resilient currencies mean the region is insulated.

“Some of them can get stressed,” he said. “At this point I would say, amongst the big ones, no clear and present danger.”

After a stellar run than began in early 2016, emerging-market assets have come under severe pressure in recent months, most notably in Argentina, where the peso has plunged 19 per cent against the dollar this quarter, and in Turkey, where the lira is down 14 per cent.