Asia Chart of the Week:Coz rates are low

Debt, you will have noticed, has climbed rapidly in recent years across Asia (if youwonder how rapidly exactly, check out our latest regional debt update, Higher Still).

    And yet, so far, financial systems show few signs of stress. There are plenty ofreasons for this, including more stringent regulations than in the past, plenty ofliquidity, and solid FX reserve buffers. But most importantly: interest rates are stillextremely low. That means that the rise in debt servicing costs has been a lot moremuted than in other leverage cycles. Even the Fed’s three rate hikes over the pastsix months haven’t changed the picture much: long-term US interest rates, andlocal funding cost in most of Asia (though not necessarily China), have actuallyfallen over the same period. That may not remain the case forever. So it’s relevantto ask: what would happen to debt service ratios if interest rates started to rise?Asia would suddenly face a crippling jump in debt service costs, and at the veryleast have to endure sharply slowing consumption and investment. Fortunately,inflation, and therefore rates, look well contained globally for now. But what if…