Governments and central banks in emerging East Asia must remain vigilant against potential financial risks associated with higher interest rates, warns a report by the Asian Development Bank (ADB).
While softening inflation has allowed most central banks in the region to refrain from further rate hikes and even lower rates to stimulate economic growth, the report suggests that elevated price pressures, a strong job market, and robust US economic performance could prompt the US Federal Reserve to raise interest rates further.
The recent shift away from rate hikes, coupled with solid economic fundamentals, has contributed to improved financial conditions in most emerging East Asia markets. However, excluding China, the region still faces elevated interest rates, which have resulted in debt stress and bond defaults in some Asian markets.
ADB Chief Economist Albert Park emphasizes that higher borrowing costs pose a challenge, particularly for borrowers with weak governance and balance sheets. On a positive note, if advanced economies experience a faster-than-expected decline in inflation and reduced concerns over financial stability and growth, it may lead to less hawkish monetary stances.
The report also highlights the expansion of sustainable bonds in ASEAN+3, which grew by 5.1% from the previous quarter and accounted for 19.1% of global sustainable bonds outstanding. ADB, committed to a prosperous, inclusive, resilient, and sustainable Asia-Pacific region, has been working towards eradicating extreme poverty since its establishment in 1966.
