Credit strength across South and Southeast Asia is expected to remain stable over the next 12 to 18 months, despite ongoing volatility in global currency markets. According to a report released Monday by Moody’s Ratings, the vast majority of rated issuers in the region—approximately 83%—possess sufficient financial buffers or lack significant foreign exchange exposure to weather current economic pressures.
Did You Know? While several regional currencies have faced record-low valuations against the US dollar, both the Malaysian ringgit and the Thai baht have actually appreciated over the past year due to robust commodity exports and manufacturing capital inflows.
Drivers of regional currency volatility
The intensifying depreciation of several currencies across South and Southeast Asia through 2025 and 2026 is largely attributed to three factors: the escalating conflict in West Asia, associated shocks in oil prices, and the impact of US tariffs alongside capital outflows. While the ringgit and baht have shown resilience, the Indonesian rupiah, Indian rupee, and Philippine peso have all seen declines of between 10% and 12% over the past year.
Expert Insight: The credit stability of a corporation in this environment often hinges on its “natural hedge”—the ability to balance costs and revenues in the same currency. Companies that fail to match their debt obligations with their revenue streams face a significant risk of margin compression as borrowing costs climb.
Impacts on corporate credit quality
The credit risk for firms in the region is defined by their specific currency profiles. Airlines and Indian oil marketing companies face the most significant pressure, as they often carry US dollar-denominated costs while earning revenue in local currency. Conversely, companies in the mining, commodity, and information technology sectors often benefit from US dollar-linked revenues, which provide a natural hedge and help protect local-currency profit margins during periods of depreciation.
Moody’s noted that exporters may also find their products becoming more price competitive in international markets as their home currencies weaken. However, for companies holding substantial US dollar-denominated debt while relying on domestic revenue, the risk remains high due to increased repayment obligations.
Future outlook for borrowing costs
Despite these currency-related pressures, the rating agency does not anticipate a sharp rise in interest expenses for most rated companies. Because policy rates across the region have already climbed over the past three years to track the US Federal Reserve’s tightening cycle, the scope for further, incremental increases in base borrowing costs remains limited.
However, the financial outlook for companies reliant on foreign-currency debt is not without risk. If the US dollar maintains its current strength, these firms may face higher hedging costs, which would increase their overall financing expenses regardless of stable base interest rates.
Frequently Asked Questions
Which sectors are most vulnerable to currency depreciation?
Sectors with significant US dollar-denominated costs and predominantly local-currency revenues, such as airlines and Indian oil marketing companies, face the greatest pressure due to limited natural hedges.
Why are interest expenses not expected to rise significantly?
Moody’s indicates that policy rates across much of the region have already risen over the past three years in alignment with the US Federal Reserve’s tightening cycle, which limits the potential for further incremental increases in borrowing costs.
What is the primary risk for companies with US dollar debt?
Companies with substantial US dollar debt and largely domestic revenue bases are at risk of higher debt-servicing costs and inflated repayment obligations when local currencies weaken against the US dollar.
How might your local industry adapt if currency volatility persists through the end of the year?
