Moody’s says Economic Conditions to Determine Emerging Market Vulnerability to Higher US Interest Rates

Moody’s Investors Service said Tuesday that economic conditions in emerging economies would determine how vulnerable they were to rising long-term interest rates in the United States.
In a report released in New York overnight, the US credit rating agency noted that yields on US Treasury bonds rose last week “on optimism about US economic recovery and expectations of rising inflation.
“Given the US dollar’s role as the primary international reserve currency, US bond market volatility reverberates globally and poses the risk of sustained global financial tightening,” the report said.
“Such tightening, in turn, would likely jeopardiសe already fragile economic recoveries in many emerging markets.
“For emerging market countries, the effect of the rise in US long-term interest rates and the ability to navigate through increased market volatility varies widely and depends on the particular country’s reliance on external capital and its domestic macroeconomic conditions.”
The report — by Moody’s managing director for credit quality Atsi Sheth — said tighter finance would have varied impacts on economic activity in emerging economies.
“The more reliant a country is on external capital, the greater its risk from diminished foreign inflows,” Sheth said.
“Financial conditions in countries that lack the domestic capital market depth to meet their financing needs locally tend to experience more severe tightening and greater risks to their economic recovery when global capital flows dry up,” she added.
“Conversely, countries with deep capital markets or banking systems can offset tightening external conditions through domestic sources of capital and credit.”
The IMF Executive Board said in December 2019 that credit in Cambodia had “accelerated and is increasingly concentrated in the real estate sector and consumer lending.”
Cambodia needs “prompt actions to moderate credit growth, including through additional macroprudential measures and a broad-based policy response to address risks stemming from the real estate sector,” it said.

Source: Agency Kampuchea Press