Fed Tightening Hits Asia Unevenly as Deficit Countries Suffer

The US Federal Reserve's monetary tightening cycle is expected to have a significant impact on Asian markets, but its effects will vary sharply by country and sector.

Fed Chairman Kevin Warsh announced that the central bank would hike its benchmark interest rate by 25 basis points in September, with further increases likely to help combat inflation above the 2 percent target for over five years.

Asian economies and financial markets are expected to be affected through several interconnected channels, including capital outflows, weakening domestic currencies, and increased inflationary pressures.

Economies with current account deficits, such as India, Indonesia, and the Philippines, will be hit hardest by higher US interest rates, while those with surpluses, like China and South Korea, may see their currencies appreciate.