Financial market sell-off, impact of Biden stimulus

The sell-off in Asian financial markets gathered pace today on the back of concerns that President Biden’s fiscal stimulus package could prompt the US Fed to start raising interest rates. We don’t think the Fed will be in any hurry to start tightening policy, but even if it did, Asian countries are well-placed to withstand a tightening in global financial conditions. It is noticeable that that the two Asian currencies that were worst hit during the taper tantum of eight years ago, the Indian rupee and the Indonesia rupiah, have held up relatively well so far. In addition to the impact on monetary policy expectations, the other channel through which Joe Biden’s fiscal plans could affect Emerging Asia is through higher import demand. However, the boost is likely to be much smaller than we would normally expect for a package of this size.