The prospect of the first hike in U.S. rates in almost a decade had
kept emerging markets on edge in the weeks before the decision, amid
fears investors would redirect capital to higher-yielding U.S. debt
in a fresh blow to their shaky economies.
However, an initial rally smoothed the brows of Asian central
bankers, who were the first to respond to the hike as U.S.
policymakers sought to end an era of ultra-low rates that followed
the global financial crisis.
"The Fed's action brings an end to the lift-off uncertainty," said
Amando Tetangco, the governor of the Philippine central bank, which
left interest rates on hold at a monetary policy meeting on
Taiwan's central bank unexpectedly cut its policy rate by 12.5 basis
points, suggesting that worries about the region's sluggish growth,
not capital flight, are at the front of policymakers' minds.
The relief among policymakers, and investors, comes as the global
economy navigates some rough terrain, with many export-reliant
economies hit by cooling growth in China and deflationary pressures
rising amid a collapse in commodities.
Add to that mix pedestrian growth in Japan and the euro zone, and it
isn't hard to see why many investors were nervous about the
prospects of rising borrowing costs in the United States.
Indeed, the more composed initial markets reaction was aided by the
fact the Fed had clearly flagged the move in advance, and also said
the pace of tightening would be gradual - an important signal for
many asset markets adjusting to less stimulus after years of flush
Indonesia was at the center of the "taper tantrum" in mid-2013, when
the Fed talked about cutting its bond purchases, and this year its
rupiah currency has been one of the region's worst performers.
But the rupiah rallied on Thursday, and other regional currencies
rose initially before pulling back, with Indonesia's President Joko
Widodo welcoming the Fed's decision "because there is certainty."
Bank Indonesia kept interest rates unchanged on Thursday, as
expected, but said it saw more room to lower them next year,
although it would monitor market reaction to the Fed hike.
"The effect is positive for us - the stock index rose, the rupiah
strengthened, the financial market reacted positively," Widodo told
MORE EASING IN ASIA
Others, however, cautioned that higher interest rates would pose
problems for economies that were too reliant on debt-fueled growth.
"The Fed's hike will stiffen the headwinds for growth in Asia," said
Fred Neumann, HSBC's chief Asia economist.
"Rising funding costs, especially in highly indebted economies, will
slow the leverage cycle on which regional demand has increasingly
come to depend," he said.
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And despite the Fed hike, policy in much of Asia is set to loosen
further in a reflection of the fitful growth in the region.
Barclays economist Wai Ho Leong expects monetary easing in the first
half of next year to be led by India, China and probably also
Indonesia and South Korea.
"No one is turning hawkish after the Fed has hiked," he said.
"Most central banks are dovish. This is to counter the effects of
the trade recession, which hits Asia disproportionately harder than
any other region in the world."
NOTES OF RELIEF
Hong Kong's top central banker, who was obliged to immediately match
the Fed's hike under the Chinese-run city's peg to the U.S. dollar,
said he expected only a modest outflow of capital as a result of the
China's central bank also added to the reassuring mood, penciling in
economic growth of 6.8 percent for next year in a working paper
released on Wednesday, down only slightly from an expected 6.9
percent this year.
Data showing drops in exports from Japan and Singapore, including
big falls in shipments to China, sounded some of the few sour notes
on Thursday, but Tokyo too voiced relief that emerging markets were
taking the U.S. rate hike in their stride.
Indian policymakers, including Reserve Bank of India Governor
Raghuram Rajan, have been touting the South Asian nation as being
more insulated to Fed-related volatility than other emerging
markets, due to its better economic fundamentals.
"I think we are relatively well cushioned," Chief Economic Adviser
Arvind Subramanian said.
(Additional reporting by Nathaniel Taplin in Shanghai, Xiaoyi Shao
in Beijing, Leika Kihara in Tokyo, Karen Lema in Manila, and Rajesh
Kumar Singh and Suvashree Dey Choudhury in New Delhi. Writing by
Mark Bendeich and Nicholas Owen; Editing by Shri Navaratnam and
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