Recent US Federal Reserve minutes show that further interest rate hikes are expected in the coming months, Bloomberg reported, signalling that global inflation is likely to stay high.

With current elevated interest rates, companies are reluctant to issue debt, said Rating Agency of Cambodia (RAC) executive director, Chakara Sisowath.

The increase in interest rates globally has adversely affected the capital markets, thereby pushing investors to instead look for relatively higher yields in “safer places” like bank deposits or money markets.

“Central banks are still in tightening mode, which is a sign that they see inflation expectations as stubbornly high,” Chakara told Kiripost, following RAC’s membership acceptance by the Association of Credit Rating Agencies in Asia (ACRAA).

Having said that, “we have a constructive view”, he said, explaining that monetary tightening works itself into the real economy with a time lag.

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“We expect to see its effect in softer inflation numbers and lower interest rates in the coming months. This will sustain a greater level of activity in the capital markets in Cambodia where economic growth and funding needs remain strong,” Chakara added.

The rating agency, which issued a KhAAA rating for Royal Railway Plc’s $24 million bond last year, had its membership approved by Manila-based Association of Credit Rating Agencies in Asia (ACRAA) on June 26.

A train station in Phnom Penh. Kiripost/Siv Channa

Chakara said by joining the regional peer, RAC would benefit from the exchange of information, experiences and skills.

“By improving the quality of market information from issuers to investors conveyed through its credit rating, RAC would contribute to the expansion of the Cambodian capital markets and the development of the economy,” he added.

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ACRAA, set up in 2001 with the cooperation and support of the Asian Development Bank (ADB), was aimed at bringing together domestic credit rating agencies within a regional cooperative effort.

It seeks to promote the adoption of best practices and common standards throughout Asia, and encourage Asian capital market development and cross-border investment in the region.

ACRAA has 28 members from 13 countries.

Accordingly, RAC is Cambodia’s first rating agency established in February 2022, with ACRAA being its initial membership enrollment, and may consider becoming part of a regional or global body involved in green bonds in future.

Since it received its credit rating agency licence in July 2022, RAC has made one public rating, Royal Railway.

“We are working on several private credit ratings that must remain confidential at this time,” Chakara said.

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