A wind down of the US Federal Reserve's stimulus programme will "not be a bad thing" for Southeast Asia, Singapore's finance minister said today, at the end of a week that saw a huge sell-off in emerging markets.
But Tharman Shanmugaratnam said the Fed must manage the move carefully, citing the week's volatility that has seen the Indian rupee plunge to record lows and other currencies also founder.
"The tapering of (the Fed's bond-buying scheme) and tightening of US monetary policy, when it occurs, will not be a bad thing for the region's economies," he said at a regional business forum.
"It is not in anyone's interest, including the emerging economies, for very low global interest rates to continue indefinitely," said Shanmugaratnam, who is also one of Singapore's two deputy prime ministers.
"Low or negative real interest rates have inevitably led to a search for yield and a build-up of financial imbalances in Asia."
But Shanmugaratnam said the unwinding of QE would take place together with a recovery in the US economy "and is not in itself a negative for ASEAN countries".
He added that growth in the Association of Southeast Asian Nations is supported by structural reforms and that the risk of a balance of payments crisis was "relatively low".
Debt levels in ASEAN are also low and official reserves are much higher compared with the situation during the 1997-1998 Asian financial crisis, he said.
But Shanmugaratnam said that the current fluctuations in global financial markets "underscores the need for the tapering process, when it occurs, to be gradual and managed very carefully".
This week has seen the rupee slump to an all-time low against the dollar, while Indonesia's rupiah is sitting around four-year lows and the baht at a more than one year low.
And among stock markets Jakarta fell almost nine percent in the four days ending yesterday, while Bangkok was down 6.5 per cent over the same period. Manila slid six per cent yesterday, its only trading day so far.
Minutes from the Fed's last policy meeting released on Wednesday gave no clarity on the central bank's plans for tapering its USD 85 billion-a-month QE programme, providing no relief to under pressure emerging markets and currencies.
"Financial volatility is likely to occur from time to time, given the market's tendency to anticipate and front-run monetary policy moves," he said.
