Asia Should Prepare for US Tapering Ahead

Video | 25 November 2013

Thiam Hee Ng, Senior Economist with ADB's Office of Regional Economic Integration, says the delay in US tapering has provided a window of opportunity for Emerging East Asian countries to further strengthen their economies and undertake more structural reforms to boost resilience in dealing with possible financial turmoil ahead.

Transcript

Title: Asia Should Prepare for US Tapering Ahead

Description: Thiam Hee Ng, Senior Economist with ADB's Office of Regional Economic Integration, says the delay in US tapering has provided a window of opportunity for Emerging East Asian countries to further strengthen their economies and undertake more structural reforms to boost resilience in dealing with possible financial turmoil ahead.

Thiam Hee Ng
Senior Economist
Asian Development Bank

In September the US Federal Reserve made announcement that it would delay the tapering. So that sort of helps bond markets rally both in the US and also in the region, as a result we’ve seen that the region’s financial markets both the bonds and equity market have rallied and regain some of their losses. The other region again of course, this delaying tapering also allows the US economy to be on a stronger footing before the rise im interest rate.

Emerging East Asia’s local currency bond markets continue to grow on a quarterly basis is up to 2.4% and at the end quarter 2013 the total bonds outstanding is $7.1 trillion.

Q: What are the risks and opportunities as US monetary policy normalizes?
A:  As we know that delaying tapering has given the region authorities a window of opportunity to further strengthen the economies and undertake further structural reforms, this can help improve the resilience of the financial systems to deal with any possible financial turmoil ahead. The risk we saw is that the regions remain vulnerable to shifts in global investments. Also at the same time title liquidity situation or higher interest rate could result in falling that could affect also the economy in the region. Finally, this volatile flows are making life hard for region policy makers as they strive to manage and stabilize the economy.

Q: What liquidity issues are you seeing in Asia’s local currency bond markets?
A: We just completed our annual survey, our liquidity in the bond markets and we find that the average big aspect for the market has remain more or less the same. So, this suggests that despite the recent financial turmoil, the liquidity in the bond market have not been too badly affected. Nevertheless, respondents in our survey continues to emphasize the need to promote greater diversity of investors to facilitate more trading and therefore, greater liquidity in the bond market.