MANILA, Philippines–Money will remain cheap in Asia-Pacific through next year, helping private firms fund their expansion plans and governments pay for expensive projects that the region’s fast-growing economies need.
Credit watcher Moody’s Investor Service said even as the US Federal Reserve prepared to hike interest rates, these adjustments would likely be done gradually. As a result, cash would continue to flow into Asian markets, keeping funding costs down.
“Our core scenario assumes only a moderation, not a major disruption, in capital flows headed for Asia in 2015,” Moody’s said in its new “Inside Asia” report.
Fears over rising interest rates follow the US Fed’s decision last month to halt its monthly asset purchases after months of tapering it off. These asset purchases that stated in 2009 drove interest rates in the US to record lows, pushing investors to emerging markets in Asia where yields were higher.
With the tap of new cash in the US now drying up, investors are expected to take their cash out of emerging markets and bring it back to the world’s largest economy.
The Fed is seen to start hiking interest rates after a protracted period of keeping them at record lows.
Moves by policymakers in other major economies also bear watching, Moody’s said, as these may counter the liquidity-sucking effects of the Fed’s new direction.
While the Fed and Bank of England likely to tighten their policies next year, the Bank of Japan and European Central Bank are likely to maintain their accommodative monetary policy stances, Moody’s said.
Asian economies also remain among the most attractive investment destinations globally, owing to their stability and high levels of growth relative to the rest of the world.
Of the 22 countries rated by Moody’s in the region, 19 have stable outlooks, while two—Malaysia and the Philippines—have positive outlooks.