Build buffers against rising US interest rates

Strong enough: People having a good view of the Petronas Twin Towers in Kuala Lumpur. Malaysia’s banking sector remains strongly capitalised and the domestic capital market is able to mitigate the impact of capital-flow volatility.

WITH the persistent rise in inflation, a cycle of global monetary tightening has begun with the Federal Reserve (Fed) leading the pack. Many central banks in developing and emerging economies are also keeping their focus on the fight against higher and longer inflation.

As the US monetary policy is a major driver of the global financial cycle and capital flow, the quantum of the federal funds rate increase and the degree to which the Fed surprises the market may pose a danger to emerging market economies (EMEs).