Policy mgm’t seen as key to sustaining growth in EMs

MANILA, Philippines - Policy management is key to sustaining growth in emerging Asia including the Philippines following the US Federal Reserve’s decision to keep its massive bond buying program, Fitch Ratings said yesterday.

“Policies to keep growth on a sustainable footing without a worsening of trade deficits and raising of inflationary pressure remain key to sovereign creditworthiness in emerging Asia,” the credit rater said.

“Success in lowering external imbalances to within financeable limits should help anchor investor confidence and head off any future resumption or intensification of market pressures,” it continued.

Fitch Ratings noted that the Fed’s announcement already raised asset prices in emerging markets as investors sought out higher-yielding assets.

“However, Fitch still expects global funding conditions to tighten over the coming year, even if the pace and scale remain subject to uncertainty,” the investment bank said.

“Therefore measures to keep growth on a sustainable footing without a structural deterioration in trade deficits or sustained pick-up in inflation pressure, remain important for shoring up investor confidence and for sovereign creditworthiness,” Fitch continued.

The US Fed on Thursday decided to stick to its program of purchasing mortgage-backed and Treasury assets, surprising markets as the US central bank was expected to start tapering its stimulus.

“The region faces headwinds not only from eventual Fed tapering driving tighter funding conditions, but also from pressure on commodity prices partly as a result of China’s slowdown — this has been particularly significant for Indonesia,” Fitch said.