Kochi: The FDI flow to India and other Asian countries will slow down with the US expected to hike the interest rates in the second half of the year, according to Dominique Dwor-Frecaut, director of Asia Research, Barclays Capital, Singapore.

''A resilient economy and strengthening of labour markets in the US suggest that it will continue to hike rates through 2006,''she said at the 16th National Forex Assembly organised by the Forex Association of India here. Given higher rates, the appetite for risks comes down resulting in slowdown of foreign exchange flow. Nonetheless, the flow to Asia would remain positive during the year, she said.

Along with the US economy, the Japanese and European economies are also showing signs of recovery, which could mean stronger demand prospects for Asia exports. However, according to her, the high oil prices could impact the balance of payments in the Asian countries. The oil prices are expected to remain above $60 per barrel in the coming months.

But except in India and Thailand, the impact of oil prices on imports will be mitigated by a lacklustre demand in Asian countries. In India and Thailand with good domestic growth, the high oil prices will squeeze the economy unless the governments take corrective measures.

The recent revaluation of Chinese currency was smaller than expected and hence could have limited impact on regional currencies, Dominique said. The revaluation has been fuelled by structural rather than cyclical considerations, she said.

Moreover, the central bank intervention will bring down the regional impact further. It will also have small impact on the Asian exports. In fact, the commodities and capital goods exporting countries will benefit from stronger Chinese exports.

But the revaluation is too small to have an impact on labour intensive, low sophisticated Asian exporters. ''The exchange rate flexibility in China is a long-term goal, which will require capital account liberalisation. But this is not going to happen for some time as the corporate and financial balance sheets are quite weak,'' she said.

Speaking on the implications of global interest rates on the Indian rupee, Subir Gokarn, executive director and chief economist of CRISIL said asset returns and prices are increasingly determined by global portfolio adjustments.

Ever since 1990's, the magnitude of global capital flows to India has increased, he said. The domestic reforms and deregulation will only intensify the process, according to him.