April 20, 2016 / 10:12 AM / 2 years ago

ADB head: Dollar strength 'corrected', market turmoil unlikely

TOKYO (Reuters) - Asian Development Bank President Takehiko Nakao said on Wednesday that the “correction” of dollar strength since the start of this year is unlikely to cause market turmoil, with the yuan and other Asian currencies stabilizing.

Asian Development Bank (ADB) President Takehiko Nakao gestures at the entrance of ADB headquarters in Mandaluyong, Metro Manila after a forum with members of the Foreign Correspondents Association of the Philippines January 8, 2016. REUTERS/Erik De Castro

The head of the Manila-based lender also gave a sanguine view on China, saying that the world’s second largest economy will avoid a hard-landing as it rebalances from investment to consumption-led growth.

“Asian currencies including the yuan are more stable now than before. China must not hurry to loosen its existing regulations against capital outflows and it may intervene to an extent” to support the yuan, Nakao told Reuters in an interview in Tokyo.

Nakao said expectations for higher dollar interest rates have been digested in the market, causing dollar strength to be “corrected”, while investors bet the United States will go slow in raising interest rates.

“I don’t expect the correction of dollar strength to cause a big turmoil in financial markets. I have not heard concerns about a currency war in Asia,” said Nakao, former Japanese vice finance minister for international affairs.

GROWTH MOMENTUM IN SOME PLACES

The ADB has forecast that growth in China would slow to 6.5 percent this year from 6.9 percent in 2015, its weakest expansion in a quarter of a century. Growth is projected to slow to 6.3 percent in 2017, according to the ADB.

    A winding back of investment in public works, manufacturing sector and real estate is putting a drag on the Chinese economy near term, prompting some people to be concerned about the depth and duration of the slowdown, Nakao said.

But “there’s room for Chinese authorities to adopt fiscal and monetary stimulus. I don’t expect a hard landing in that sense,” he added.

Despite a slowdown in China, emerging Asian markets are holding firm as a whole with growth momentum accelerating in India, Vietnam and Myanmar, Nakao said.

Japan will host a Group of Seven summit on May 26-27, seeking to promote stimulus that strengthens domestic demand and to call on other nations to use fiscal spending to spur growth.

“Emerging Asia hope advanced economies achieve a steady growth and cautiously conduct monetary policy in the way that would prevent volatility in currency markets,” Nakao said.

Editing by Richard Borsuk

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