November 30, 2017 / 5:42 AM / a year ago

ADB head sees Asia resilient to U.S. interest rate hikes

Asian Development Bank (ADB) President Takehiko Nakao delivers a speech during an opening session of the ADB annual meeting in Yokohama, south of Tokyo, Japan May 6, 2017. REUTERS/Issei Kato

TOKYO (Reuters) - Asian countries can cope with interest rate hikes in the United States as long as the moves are gradual and reflect U.S. economic fundamentals, Asian Development Bank (ADB) President Takehiko Nakao said on Thursday.

Nakao’s comments came after outgoing Federal Reserve Chair Janet Yellen told congressional leaders that the U.S. economy has gathered steam this year and will warrant continued interest rate increases amid a strengthened global recovery.

The Manila-based lender last month flagged the risk of potential capital outflows and higher borrowing costs as the Federal Reserve begins the unwinding of a decade of aggressive monetary stimulus and continues to raise interest rates.

Nakao said stable regional currencies and sound macroeconomic and monetary policies of each country, backed by ample foreign reserves and financial safety net such as currency swap lines, make Asia resilient to impacts from U.S. rate hikes.

“Generally speaking I’m not necessarily unconcerned,” Nakao, former Japanese vice finance minister for international affairs, told Reuters in an interview.

“But I don’t think gradual interest rate hikes that reflect strength of U.S. economy will have large ill effects on Asian economies.”

Nakao also said that China, Japan’s largest trading partner, will face a gradual slowdown as it rebalances towards a services- and consumption-led economy, while the working population declines and a shift of people from inland to coastal areas has peaked.

Still, he shrugged off concerns about a sharp slowdown, while some economists warn China’s economy could falter as stimulus steps taken in the run-up to the 19th Communist Party Congress last month run their course.

“Rapid slowdown is unlikely given strength in private consumption even though China won’t keep the pace of growth as before,” he said, noting China is making a more-than-expected progress in a shift away from investment to consumption.

Reporting by Tetsushi Kajimoto; Editing by Kim Coghill

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