Asian central banks, which have been accumulating foreign exchange reserves for years, are now using their foreign exchange reserves to boost their currencies in the face of a strong dollar.
As of June 17, Thailand’s foreign exchange reserves fell to $221.4 billion, the lowest level in more than two years. Indonesia’s foreign exchange reserves were at their lowest level since November 2020. Foreign exchange deposits in South Korea and India were also at their lowest levels in more than a year. Malaysia’s foreign exchange reserves fell by the most since 2015.
Rajeev De Mello, global macro portfolio manager at GAMA Asset Management, said: “When the market is too volatile, some countries use their foreign exchange reserves to stabilize their currencies. They know they can’t reverse their currency’s decline against the dollar, but they can slow the decline. .”
Learning from the 1997 Asian financial crisis, central banks have been accumulating dollars to defend their currencies in times of wild market volatility.
This year, as the U.S. Federal Reserve’s hawkish stance boosts the dollar, many central banks have turned to buying their own currencies: Central banks in Thailand, Indonesia, and others have pledged to slow volatility in their currencies, while the Philippine central bank says the peso-dollar exchange rate is determined by the market. decided to intervene only to curb excessive volatility.
Asian currencies are expected to come under more pressure as the Fed is likely to raise interest rates again next month. Asian currencies are currently hovering at multi-year lows.Philippine PesoOn Monday (27th), the Indian rupee hit an all-time low last week.
St. Louis Fed President James Bullard said on Friday that the Fed must act boldly in suppressing inflation before inflation expectations rise even higher and become entrenched. He personally hopes to raise the federal funds rate to 3.5% by the end of the year.
This month, the Fed announced a 3-yard rate hike (75 basis points), the largest increase since 1994, and the benchmark rate rose to 1.5%-1.75%.