Fitch: Real Rates Positive on Average in EM Asia; Room for Rates to Fall

Link to Fitch Ratings' Report: APAC Sovereigns Chart of the Month - May 2016

Fitch Ratings-Hong Kong : Real interest rates remain positive for most of emerging Asia (EM Asia) despite easy monetary policies across most of the region. This is mainly due to subdued underlying inflation stemming from low oil prices, Fitch Ratings says in a new report.

Most central banks in the region have either eased monetary policy or kept rates on hold since early 2015 to support growth in a less favourable external environment. While the Philippines and Malaysia have stayed on hold, India and Indonesia have cut policy rates since early 2015. However, data suggest that the impact on domestic demand from higher lending activity is not as strong since the rate of credit expansion on average has remained unchanged over this period for most countries. Vietnam and Sri Lanka are the exceptions with credit growth on average between 15% and 20%.

There remains room for interest rates to fall further, given positive real interest rates. Fitch believes the quality of policy management is likely to come into focus for sovereigns in this region when the US Federal Reserve increases its interest rates.