Currency depreciation a risk to emerging markets
Moody’s Investors Service has said that the currency depreciation witnessed across Asia Pacific in recent months poses risks to the region’s emerging and frontier markets. Sovereigns with high external financing needs are most exposed.
Most currencies in APAC have depreciated against the US dollar this year, with the largest depreciations in the key Asian emerging markets of India (Baa2 stable), Indonesia (Baa2 stable) and the Philippines (Baa2 stable). “In Indonesia and the Philippines, currency pressure will exacerbate already weak debt-affordability metrics. If associated with capital outflows, tighter financing conditions will have wider repercussions for the balance of payments,” said Anushka Shah, a Moody’s vice president and senior analyst. “By contrast, India’s low dependence on foreign currency to fund debt burdens limits the risk of a weaker currency [translating] into weaker debt affordability,” Shah said. The extent of depreciation has been less pronounced than during the taper tantrum in 2013, Moody’s said.
