‘Strong US dollar, rate hike to pressure emerging marts’

SINGAPORE: Emerging markets will face stress as they cope with a stronger US 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 developing economies were in a stronger position to absorb hikes, compared with the taper tantrum in 2013. But he cautioned that accidents could happen.

“There will be still stresses for emerging markets, they will have to cope with a rising US dollar and rising international interest rates and the flowback of capital flows,” he said, here, yesterday.

Rajan 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,”

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 US dollar this quarter, and in Turkey, where the lira is down 14 per cent.

In Asia, India has been one of the hardest hit economies in the emerging-market rout, with the rupee down almost five per cent against the US dollar this year.