What lies ahead for ASEAN when incoming Fed chair Yellen steps up
Will investors' confidence wane?
According to ICAEW report, if Janet Yellen, incoming Chair of the US Federal reserves, is less eager than expected to maintain a loose monetary policy, investors may overreact.
In ASEAN, this could result in selling assets, including domestic ASEAN currencies.
The resulting currency depreciation would almost certainly weaken investor confidence, affecting external financing and investments, and rapidly transforming the credit environment in the region.
Such an outcome would have a significant impact on countries – particularly Indonesia and Thailand – that have experienced high capital inflows since the financial crisis.
Mark Billington, Regional Director, ICAEW South East Asia, said: “ASEAN central banks have steadily increased their reserves over the previous decade, which should allow them to weather currency depreciations.
These measures were implemented after the ASEAN Financial Crisis, which saw unexpectedly high capital outflows take governments by surprise, and will help the regional governments react better to global volatility.
Sound management of public finances will be fundamental, and should ensure that countries are able to take advantage of opportunities for growth and manage the expectations of overseas investors.”