The Monetary Authority of Singapore polled 25 economists, and their median forecasts predicted growth of 3.1% in the last quarter of 2024 and 2.6% in 2025.

Following third-quarter growth that exceeded projections at 5.4%, the trade ministry increased its 2024 GDP growth forecast to 3.5% last month from a previous range of 2.0% to 3.0%.

The MAS is expected to stick to its current monetary policy in its quarterly reviews in January, April, and July, according to the majority of economists polled.

Even though inflation decreased and growth increased in October, the MAS maintained its monetary policy settings.

Since a tightening in October 2022—the fifth consecutive tightening—it has not altered its policy.

Just 33% of respondents anticipate monetary policy to be loosened in January through a decrease in the slope of the Singapore dollar nominal effective exchange rate, or S$NEER, down from 50% in the September survey.

Singapore’s central bank determines the direction of the S$NEER’s policy band, which influences the value of the local currency relative to its major trading partners.

Core inflation this year was 2.8%, down from 2.9% anticipated in the September survey, while headline inflation for 2024 was 2.5%, down slightly from that forecast. According to the survey, core inflation in the last quarter of this year was 2.1%.

Compared to a year earlier, core inflation decreased to 2.1% in October, the lowest increase in nearly three years. Both headline and core inflation in 2025 are predicted by the economists polled to be between 1.5% and 1.9%.

Meanwhile, US President-elect Donald Trump has vowed to raise tariffs to as high as 20% on imports from around the world including Singapore.

The post Singapore economists see growth of 3.6% in 2024, monetary policy remains unchanged appeared first on International Finance.

According to the most recent economic data, core inflation, a gauge of price changes that takes energy prices into account, decreased marginally from 3.9% to 3.7% over the same period, but annual headline inflation fell from 3.5% in August to 3% in September 2024.

The rate of inflation in services decreased from 6.2% in August to 5.8% in September.

September’s other goods inflation rate held steady at 2%, indicating that the local business environment’s price pressures are abating.

The primary reasons for the decline in inflation are lower fuel and food prices, even in the face of ongoing threats from unfavourable weather conditions linked to extreme climate change patterns.

Uncertainty persists regarding the precise effect of the central bank rate (CBR) cut on the momentum of economic growth. Economic growth is anticipated to range from 6% to 6.5% for the fiscal year 2024–2025.

“Whenever we cut the CBR, we consider inflation and economic growth in perspective over 12 months. So far, the CBR stood at 10 per cent while the average interbank rates stood at around 12% by the end of September. With the CBR down to 9.75%, average interbank rates will reduce to around 11.75%. This situation will encourage commercial banks to cut lending rates, expand their loan books, and eventually boost economic growth along the way,” Dr Adam Mugume, Bank of Uganda’s Executive Director for Research said.

In August, the central bank cut its interest rate to 10%.

“The CBR cut was widely expected because of the recent easing of monetary policy undertaken by the US Federal Reserve. The US Fed has already cut its benchmark policy rate while the European Central Bank has slashed its policy rate twice. The CBR cut implies commercial banks will cut their prime lending rates going forward and this will stimulate demand for private sector credit, increase aggregate demand, and boost economic growth,” Benoni Okwenje, General Manager for Treasury Operations at Centenary Bank Uganda Limited said.

The post Bank of Uganda cuts key lending rate again, indicates reduction in inflationary pressures appeared first on International Finance.

Ryozo Himino also added that it was inappropriate for central banks to directly target exchange rates in setting monetary policy, as other factors need to be considered as well.

“Exchange-rate fluctuations affect economic activity in various ways. It also affects inflation in a broad-based and sustained way, beyond the direct impact on import prices,” Ryozo Himino remarked.

“That’s why we obviously need to be very vigilant to, and analyse very closely, the impact of exchange-rate volatility on the economy, prices and their outlook,” remarked the BOJ Deputy Governor, during a panel session hosted by Columbia University in Tokyo.

“The BOJ shouldn’t automatically respond to exchange-rate moves in setting interest rates, though, as there were other aspects that need to be taken into account such as the economic and price outlook,” he added further.

Ryozo Himino’s comments came amid the backdrop of a weak Yen that has become a headache for Prime Minister Fumio Kishida’s administration, which has seen its approval ratings slump as the currency’s decline pushed up households’ cost of living by inflating the import cost of food and fuel.

BOJ Governor Kazuo Ueda has ruled out using monetary policy to directly influence exchange-rate moves, but signalled the chance of tightening the monetary policy if the weak Yen pushes up inflation more than expected. The Governor also noted recently that his country has “made progress in moving away from zero and lifting inflation expectations.”

“While many of the challenges we face are similar to those encountered by our counterparts, some are uniquely difficult for us,” the BOJ chief remarked, while also noting that estimating the neutral interest rate accurately is particularly challenging in Japan, given the prolonged period of near-zero short-term interest rates over the past three decades.

In fact, while talking about the task of achieving the 2% inflation target in a sustainable and stable manner, the BOJ Governor also said that the central bank “will proceed cautiously, as do other central banks with inflation-targeting frameworks.”

Many market players expect the BOJ to raise interest rates from current near-zero levels in 2024 with some expecting a move as early as July, partly to slow the yen’s persistent decline.

Asked what the central bank would do with its huge balance sheet, Ryozo Himino said the BOJ would make a decision focusing on how it would affect the economy, prices and its goal of sustainably achieving its 2% inflation target.

“It’s desirable for markets to set long-term interest rates. On the other hand, the BOJ has been deeply involved in the bond market up till very recently and our presence remains very large. We need to avoid causing discontinuity or any unintended moves in the market,” Ryozo Himino remarked further.

Ryozo Himino’s remarks further underscore the tricky balancing act the BOJ faces in allowing market forces to drive long-term interest rates higher, while avoiding an abrupt spike in bond yields.

In March 2024, the BOJ ended eight years of negative interest rates and a policy capping long-term borrowing costs around zero dubbed yield curve control (YCC).

“The decision was partly aimed at breathing life back to a market made dormant by the BOJ’s huge presence, and allowing market forces to drive yield moves. Markets are focusing on whether the BOJ, at its next policy meeting on June 13-14, will move to a full-fledged reduction in its huge bond purchases,” reported Reuters.

The 10-year government bond yield briefly jumped to 1.1% in May 2024, the highest level since July 2011, on growing expectations of a near-term interest rate hike.

Shinichi Uchida, another Deputy Governor of BOJ, recently said that the end of Japan’s battle against persistent deflation is in sight, but acknowledged that anchoring inflation expectations to the 2% target is “a big challenge.”

“Labour market conditions have changed structurally and irreversibly, helping resolve the original causes of deflation such as excess labour supply,” the senior official told the media.

“We returned to a conventional monetary policy framework, aiming at a 2% price stability target through adjustments of the short-term policy rate, which means we have overcome the zero lower bound,” he concluded.

The post Here is what BOJ has to say on Yen’s impact on Japan economy appeared first on International Finance.

Kazuo Ueda stated that Japan has “made progress in moving away from zero and lifting inflation expectations” during his opening remarks at a central banking conference in Tokyo that was organised by the Bank of Japan.

“To achieve 2% inflation in a sustainable and stable manner, the Bank of Japan will proceed cautiously, as do other central banks with inflation-targeting frameworks,” Kazuo Ueda said, as reported by the Business Standard.

“While many of the challenges we face are similar to those encountered by our counterparts, some are uniquely difficult for us,” he added.

According to Kazuo Ueda, the long period of nearly zero short-term interest rates in Japan over the previous three decades makes it particularly difficult to determine a neutral interest rate.

“The absence of significant interest rate movements poses a considerable obstacle in assessing the economy’s response to changes in interest rates,” he said.

Bank of Japan Deputy Governor Shinichi Uchida stated during the same conference that Japan’s fight against ongoing deflation is almost over, but he also acknowledged that tying inflation expectations to the target of 2% would be “a big challenge.”

According to Uchida, the initial causes of deflation, such as an excess labour supply, have been resolved in part by the structural and irreversible changes to the labour market.

“We returned to a conventional monetary policy framework, aiming at a 2% price stability target through adjustments of the short-term policy rate, which means we have overcome the zero lower bound,” Uchida said.

The BOJ ended eight years of negative interest rates and other extreme stimulus measures in a historic move in March 2024 after concluding that sustained achievement of its target inflation rate of 2% was imminent.

According to Kazuo Ueda, if growth and inflation follow its forecasts, the central bank plans to raise rates to levels deemed neutral for the economy.

The post BOJ will approach inflation-targeting frameworks cautiously, clarifies Governor Kazuo Ueda appeared first on International Finance.

Currency impacts

Exchange rates are often ignored by the public because they are rarely necessary. An average person uses the local currency to conduct his/her daily business. Only in the case of infrequent transactions like international travel, import payments, or foreign remittances, exchange rates become a concern. A strong national currency would appeal to foreign visitors because it would make trips to the country more affordable.

However, there is a drawback, as over time, a strong currency can significantly hinder the economy by making entire industries uncompetitive and resulting in the loss of thousands of jobs. Although some people might favour a strong currency, there are more economic advantages to a weak currency.

One of the most important factors that central banks take into account, when determining monetary policy, is the value of the home currency on the foreign exchange market. Currency fluctuations can affect several things, including your mortgage interest rate, investment portfolio returns, the cost of groceries at your neighbourhood supermarket, and even your chances of landing a job.

The economy is directly affected by the level of a currency in many manners. Take merchandise trade for example. This represents the imports and exports of a country. A weaker currency generally raises the cost of imports while lowering the cost of exports for buyers abroad.

Over time, a country’s trade surplus or deficit may be attributed to its currency, which may be strong or weak. Say, for instance, that you are an American exporter who offers widgets to a customer in Europe for $10 apiece. The exchange rate is $1.25 for every €1. Thus, each widget will cost €8 to your European buyer.

Let us now assume a weakening of the Dollar and an exchange rate of €1=$1.35. You can afford to give your buyer a break and still make at least $10 per widget, but they want to bargain for a lower price. Your price in Dollars is $10.13 at the current exchange rate, even if you set the new price at €7.50 per widget, which is a 6.25% discount from your buyer’s perspective. A feeble Dollar makes it possible for your export company to compete in global markets.

On the other hand, if imports become more affordable and exports become less competitive, the trade deficit may increase and the currency may eventually weaken as a result of a self-adjusting mechanism. However, an overly strong currency can harm export-dependent industries before this occurs.

Another case study is the capital flows. Strong governments, robust economies, and stable currencies are typically associated with a flow of foreign capital into those nations. For a country to draw in money from international investors, its currency must be reasonably stable.

In the absence of such, foreign investors may be discouraged by the possibility of suffering exchange-rate losses due to currency devaluation. Foreign direct investment (FDI) refers to the process by which foreign investors build new facilities or acquire stakes in companies already operating in the recipient market.

On the other hand, foreign portfolio investment involves the buying, selling, and trading of securities in the recipient market by foreign investors. For developing nations like China and India, FDI is a vital source of funding. Foreign portfolio investments are hot money that can flee the country quickly in hard times, so governments typically prefer foreign direct investment (FDI) over them. Any unfavourable event, like currency devaluation, can cause this capital flight.

Also, significant importers may experience “imported” inflation as a result of a depreciating currency. Imports could cost 25% more in the event of an abrupt 20% decline in the value of the home currency because a 20% decline implies a 25% increase is required to return to the initial price point.

How about interest rates?

Another way the economy is directly affected by the level of a currency is interest rates. As was previously mentioned, when most central banks set monetary policy, exchange rates are a major factor. When determining monetary policy, the Bank of Canada considers the Canadian Dollar’s ongoing strength, according to Governor Mark Carney’s statement from September 2012.

Carney claimed that one factor contributing to his nation’s “exceptionally accommodative” monetary policy for so long was the strength of the Canadian Dollar. A strong home currency has a similar effect on the economy as how a tighter monetary policy does.

Furthermore, if monetary policy is tightened further during a period when the domestic currency is already strong, this could make matters worse by drawing in hot money from overseas investors looking for higher-yielding investments, which would strengthen the domestic currency even more.

Judging the global impact

With over $5 trillion traded every day, far more than all global equities, the forex market is the most actively traded in the world. Even with these massive trading volumes, currencies are typically not featured on the front pages. On the other hand, there are instances when sharp fluctuations in currency values have global effects.

One notable instance of the chaos sparked by unfavourable currency fluctuations is the ‘Asian Financial Crisis’ that commenced in the summer of 1997 due to the devaluation of the Thai baht. This devaluation followed a targeted speculative onslaught on the baht, ultimately compelling Thailand’s central bank to relinquish its fixed exchange rate with the US Dollar and allow the currency to float freely.

The adverse effects of this currency crisis then radiated to neighbouring countries including Indonesia, Malaysia, and South Korea, resulting in a substantial economic downturn characterised by a surge in bankruptcies and a sharp decline in stock markets.

The other one is China’s undervalued Yuan. China maintained the renminbi at roughly 8.2 to the Dollar between 1995 and 2005, allowing its export-led economic boom to capitalise on what its trading partners claimed was an artificially devalued and suppressed currency. China reacted in 2005 to the mounting chorus of grievances from the United States and other countries. As a result, the value of the yuan increased gradually, reaching roughly 6 RMB for every Dollar by 2013 from over 8.2 RMB in 2013.

Similarly, the Japanese Yen’s Gyrations is one such incident. From 2008 to 2013, the Japanese Yen was among the most volatile currencies. Due to Japan’s policy of nearly zero interest rates, traders preferred the Yen in carry trades, where they borrowed money for very little and used it to invest in foreign assets with higher yields.

However, as the global credit crisis deepened in 2008, terrified investors rushed to buy Yen to pay back loans denominated in the currency, which caused the Yen to appreciate sharply. The outcome was a more than 25% increase in the value of the Yen relative to the United States in the five months leading up to January 2009. Then, in 2013, Prime Minister Shinzo Abe unveiled plans for fiscal and monetary stimulus (dubbed “Abenomics”), which caused the Yen to fall by 16% in the first five months of the year.

Also, the Euro fell 20% from 1.51 to the Dollar in December 2009 to roughly 1.19 in June 2010, owing to fears that the heavily indebted countries of Greece, Portugal, Spain, and Italy would be forced out of the European Union. Over the following year, the Euro gained strength once again, but only momentarily. The Euro fell 19% between May 2011 and July 2012 as a result of renewed concerns about an EU breakup.

How can an investor benefit?

There are some ideas for profiting from currency changes. The first way is to invest overseas. Foreign exchange gains will increase your returns if you are an American investor who feels that the American Dollar is losing strength and you want to invest in robust foreign markets.

Examine the S&P/TSX Composite Index for Canada from 2000 to 2010. While the S&P 500 Index was essentially unchanged during this time, the Canadian Dollar saw returns on the TSX of roughly 72%. For American investors buying Canadian equities with greenbacks, US Dollar returns were about 137%, or 9% per annum, due to the steep appreciation of the Canadian Dollar.

The other ideas are to invest in US multinationals, refrain from borrowing in low-interest foreign currencies, and hedge currency risk. A sizable portion of the revenues and profits of the numerous large multinational corporations based in the United States come from overseas. The depreciating Dollar helps American multinational corporations’ earnings, and when the Dollar depreciates, stock prices should rise accordingly.

Since 2000, the United States has experienced record-low interest rates, so, indeed, this hasn’t been a major concern. However, the rates have risen since 2022, as the world’s largest economy, along with a huge part of the world, faced record inflation.

When such a situation, like the above one, occurs, investors should keep in mind those who had to rush to return borrowed Yen in 2008 when they were tempted to borrow in foreign currencies at lower interest rates. The lesson learnt from this tale is to never borrow money in a foreign currency if you cannot or will not be able to manage the exchange risk and it is likely to be appreciated.

Unfavourable currency fluctuations can have a big effect on your finances, particularly if you’re heavily exposed to foreign exchange. However, there are many options available to mitigate currency risk, including exchange-traded funds like the Invesco Euro CurrencyShares Japanese Yen Trust (FXY) and Euro Trust (FXE), as well as currency futures, forwards, and options. If you prefer to sleep at night, consider these.

Changes in currency can have a broad effect on both the domestic and international economies. Investors can profit from weakening US Dollars by making foreign investments or purchasing shares in US multinational corporations.

When one has a significant amount of exposure to foreign exchange, currency movements can be a powerful risk, so it might be best to use one of the many hedging tools available to reduce this risk.

The post Understanding currency fluctuations appeared first on International Finance.

The British central bank’s Monetary Policy Committee (MPC) voted 6-3 in favour of keeping the rate at 5.25%, the highest level in more than 15 years.

While the United States Federal Reserve had also frozen its borrowing costs, it gave a different picture than its British counterpart, by suggesting that the American economy might witness an ‘Interest Rate Relief’ from 2024 onwards.

“Monetary policy would need to be sufficiently restrictive for sufficiently long to return inflation to the 2 per cent target sustainably in the medium term,” The Bank of England stated further, while adding, “The committee continued to judge that monetary policy was likely to need to be restrictive for an extended period of time.”

While the United Kingdom inflation dropped sharply in October 2023 to 4.6%, but the ratio remains at its highest level, compared to its G7 (Group of Seven) peers. Bank of England wants to keep inflation at a 2% rate.

However, there is another worry in the form of the latest GDP data, which shows that the European economic powerhouse contracted by 0.3%. This data alone intensifies the recession risk.

While it was the first time since July 2023 that the British GDP growth slowed down on a month-by-month basis, the Sterling fell against the United States Dollar and was weaker against the euro too.

Governor Andrew Bailey, in his recent letter to finance minister Jeremy Hunt, said that there was “still some way to go” in policymakers’ efforts to drag inflation down.

Inflation surged to a 41-year peak at 11.1% in October 2022, stoked by spiking energy prices after the beginning of the Ukraine war. While the West (including the UK and Europe) decided to punish Russia economically due to its military campaign against its neighbour, the Kremlin countered it by diverting much of its global energy supplies to markets like Asia, whereas Britain underwent a cost-of-living crisis.

Coming back to the latest Bank of England meeting, six Monetary Policy Committee members voted in favour of no change, but three others called for an increase to 5.5% and cited “evidence of persistent inflationary pressures”.

The Bank of England also froze borrowing costs at its previous gatherings in September and November 2023, thereby snapping a series of 14 rate hikes.

Sectors like construction, manufacturing and services are now slowing down in the United Kingdom. The overall economy also flatlined in the three months to October 2023, while the other British government data shows that the unemployment steadies and wage growth retreats around the same point in time.

Hunt has also maintained a stance about the Bank of England rate hikes impacting economic activities.

Bank of England, on the other hand, has stated that despite its multiple rate-hikes prolonging a cost-of-living squeeze, retail banks are well equipped to contain the fallout.

These banks pass on Bank of England rate hikes, affecting customers whose home loans come with variable interest rates, as well as those, whose fixed-term mortgage deals are expiring.

The post Bank of England holds interest rate amid recession worries appeared first on International Finance.

In order to explain the working, the regulator is still expected to issue details on the same with the National Payments Corporation of India (NPCI) as well as to banks and ATMs.

Several banks have already allowed the mode of transaction “on-us basis”. These banks include ICICI Bank, Kotak Mahindra Bank, HDFC Bank and SBI. All these banks allow customers to withdraw their cash without a card.

On promoting cashless payments, Shaktikanta Das in his MPC statement said, “Aiming to go for the card-less cash withdrawal facility, which will soon be available in all the banks as well as ATMs and operators. It has been proposed that in order to enable customer authorization with the use of UPI while at the same time transactions would happen through the ATM networks.”

The post Cardless cash withdrawal from ATMs soon appeared first on International Finance.

“In the short term, we are ready to use monetary policy if needed,” he said. “We are ready to act if growth fails to meet our expectations.”

Earlier this month, the Bank of Thailand cut borrowing costs to 1.25 percent. This interest cut is the second reduction in three months. The baht is considered Asia’s best performing currency after it gained more than 9 percent against the US dollar in the last year, the local media reported. 

The Governor warned that the benchmark key interest rate should not go below zero because hitting negative will cause structural problems. The Bank of Thailand is deeply concerned about the currency’s strength. It is closely monitoring the financial situation toward the end of the year — a period when high volume of foreign exchange transactions take place. The Bank of Thailand is exploring other options to boost policy transmission process through new players or financial markets. 

Economists predict that the Bank of Thailand might cut policy interest rate next year. The country’s financial stability risk is creates challenges such as monetary risk — although inflation is not a huge problem. 

Thailand’s current economic growth forecast for 2019 and 2020 remains at 2.8 percent and 3.3 percent respectively. However, the monetary authority’s 2020-2020 strategy indicates that volatility was inevitable as it is caused by a range of unpredictable external factors. 

Also, the Bank of Thailand has decided to review foreign exchange laws to boost flexibility and allow regulations that support financial technologies such as digital currencies. 

The post Bank of Thailand to use monetary policy to fight economic downturn appeared first on International Finance.

July 25, 2014: UK 2Q14 GDP growth has come in at 0.8%QoQ or 3.1% YoY, in line with market expectations. This is the fastest rate of annual GDP growth since 4Q 2007 and means that the UK economy has finally regained all of the lost output from the recession.

At this stage we just get an industry led breakdown, which shows that service sector output drove growth in 2Q, rising 1%QoQ. In contrast, manufacturing output rose only 0.2%QoQ, total production industry rose 0.4% and construction output fell 0.5%.

However, we believe that it is just temporary softness in these indicators with business surveys, such as the purchasing managers’ indices, suggesting activity and order books remain very firm.

Indeed, the Bank of England believe on their measures that the economy grew 0.9% in 2Q and expect Q1 GDP to be eventually revised up to 0.9% from the 0.8% currently reported. Furthermore, there are going to be significant revisions to the UK GDP statistics this September with a briefing paper released in June suggesting that the recession may have been shallower than originally thought — to the tune of around 1% of GDP.

These revisions will bring the UK in line with international conventions and will likely show that the UK actually got back to its pre-crisis size at the turn of the year. The revisions will also show that the level of UK activity is around 5% greater than currently published as coverage is expanded to include more categories such as research & development and weapons production for the first time.

The key outcome from all this will be to suggest that the UK has less spare capacity than previously thought and so inflation pressures could start to build earlier than currently forecast by the BoE. As such, it is likely to support our view that the BoE will end up tightening monetary policy sooner rather than later with November being our favoured date for the first rate hike.

Source: ING

The post UK output finally exceeds pre-recession levels appeared first on International Finance.

10th December 2013

The US Federal Reserve announcement delaying the start of a slowdown in asset purchases gives Asian markets a bit of a reprieve but does not change the basic picture that the US is embarking on a gradual normalization of its monetary policy.

The big question is whether that normalization will keep driving investors out of Asian markets, further sapping the wind from the region’s economic sails and all but wrecking the most vulnerable economies, as happened in 1997 during the Asian financial crisis.

The quick answer is “no”. A repeat of the 1997 crisis, when investors fled in droves and economies tanked, is not likely. Foreign exchange reserves are healthy in most countries, currencies are far more flexible, foreign debts are lower, most economies have current account surpluses and most countries have some room for monetary and fiscal adjustment should it be needed. The growing use of local currency bonds instead of foreign debt means borrowers are not as affected by currency devaluation, and longer tenors in foreign borrowing also means constant refinancing is not needed.

However, there are certainly risks ahead and markets and economies need to work now to brace themselves for a period of higher borrowing costs, some market volatility and slower economic expansion. Even before the latest market turmoil, growth was slowing, particularly in China, the world’s second largest economy.

As quantitative easing begins to subside, it will be harder and more expensive for enterprises and governments to raise funds, especially in foreign currencies. That will hurt a region desperate to boost investment, particularly in the infrastructure needed to keep economies expanding.

Asia has a huge stockpile of foreign reserves but they have been invested more in foreign markets like the US than in emerging Asian markets. The key is to mobilize these funds for longer-term investments that would power economic growth. Aside from keeping any potential crisis at bay, it would feed private business in driving growth. Government stimulus spending kept the region’s economies chugging along after the 2008-09 global financial crisis. Now, the baton must be passed to the private sector.

But mobilizing capital for private investment to drive growth is tricky. Since the 1997 Asian financial crisis, local currency bonds have emerged as an alternative to bank financing or foreign borrowing. Although bond markets have grown dramatically – from about $800 million to $6.5 trillion in the last 12 years – they have a long way to go before reaching the levels required to fuel economic growth and, more importantly, infrastructure spending. Regulatory issues and market structures have made it unduly difficult for regional investors to invest in regional markets. This must change if mobilizing Asian savings for Asian investment is to become reality.

Take infrastructure, for example. With the prominent exception of China, the region missed an opportunity to ramp up infrastructure spending in the post-global financial crisis period of ample, quantitatively eased, liquidity. Now, with financing conditions becoming less favorable, tougher times are ahead. This is where bond financing, for example, can serve to bridge the financing gap – by attracting a new class of investors. Institutional investors like pension funds can build stable cash flows from infrastructure projects by holding long-term bonds.

But to create vibrant bond markets that offer long-term financing for long gestation infrastructure, much more needs to be done. For the part of projects to be financed by bank, securitization can help manage risk and lengthen repayment deadlines. And governments and multilateral lenders can provide guarantees to boost potential bond issuance to investment grade.

To ease worries among lenders about whether projects are viable or not, governments can make it mandatory for infrastructure projects to provide information on the key financial and performance variables. Investors need to trust issuers, the market and the project itself. But governments can do most to mobilize finance by continuing to improve the investment climate – most visibly by building a predictable and transparent legal and regulatory environment.

Emerging Asia is most certainly not on the brink of financial crisis. But recent market turmoil should stand as a warning to Asia’s policymakers that the region is facing a new, more unpredictable future where greater efforts have to be made to get the financial and physical infrastructure needed to keep the region’s economies forging ahead.

Source: Asian Development Bank

The post Now invest in Asia’s future appeared first on International Finance.