Economists yesterday voiced mixed opinions on emerging market risks in the face of anticipated US interest rate hikes at a forum organized by the Taiwan Research Institute (台綜院).
“Personally, I am against the Fed’s intent to raise interest rates, as signs of a solid recovery in the US economy remain lacking, and the decision may cause disastrous outcomes as financial and currency risks climb,” National Taiwan University economics professor Hsu Chen-ming (許振明) said.
In addition, if the US central bank is to raise its interest rates, it will significantly impact mortgage borrowers in the US, one of the largest demographics of consumers in that country, leading to additional pressure on overall consumption growth, he said.
Furthermore, US companies may begin to experience higher borrowing costs, leading to slowed investment and growth prospects, he added.
However, Agriculture Bank of Taiwan (全國農業金庫) president Cheng Cheng-mount (鄭貞茂) said that he welcomes an upcoming interest rate hike by the Fed.
“As developing economies adopt quantitative easing policies in a bid to weather the current downturn, the influx of newly created money has surged into financial markets and exacerbated volatility and the risk of devaluing investment assets,” Cheng said.
“The Fed’s anticipated rate hike will attract much of the newly created money to the US, helping preserve market stability,” Cheng said.
“We are about to see a frightful balancing act, where developing economies rush headlong into preparing for a currency war similar to a Cold War-era nuclear standoff,” he said.
Academia Sinica research fellow Ray Chou (周雨田) said that China is the main reason for the spike in emerging-market risks.
“Beijing fired the first shot in currency wars among developing markets on Aug. 11, when its central bank allowed the yuan to fall sharply against the greenback,” Chou said.
“With China’s GDP representing about 15 percent of the world’s economy, a significant contributing factor in worldwide economic fundamentals has emerged,” he said.
Since then, countries that rely heavily on commodity exports, such as Vietnam, Indonesia, Myanmar and Malaysia, have initiated aggressive currency devaluations to shield their economies.
Meanwhile, Chou said that Taiwan’s overly sheltered financial sector had discouraged foreign direct investment and that it is regretful that Malaysia’s IOI Properties Group Bhd’s bid to acquire Ting Hsin International Group’s (頂新國際集團) stake in the Taipei 101 skyskraper had fallen through because of unfounded allegations of Chinese financial backers.
“It is as though Taiwan’s financial companies are all mama’s boys who need to be coddled,” Chou said.
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