Asian central banks’ forex reserves are plummeting. This is because the dollar is strengthening due to a sharp rise in the U.S. key interest rate, and it is stabilizing the currency value by releasing its foreign exchange reserves to the market to defend prices. However, while such measures have not had a clear effect so far, the U.S. key interest rate hike is also expected to continue, raising prospects that inflationary pressure in Asia could continue to strengthen.
According to Bloomberg News on the 28th, Thailand’s forex reserves reached $221.4 billion as of the 17th, the lowest in more than two years. Indonesia’s forex reserves are also the smallest since November 2020, and Korea and India are also the smallest in more than a year. Malaysia’s forex reserves have fallen to their lowest level since 2015. Rajade Melo, manager of GAMA Asset Management, said, “When the forex market fluctuates, we would have used our reserves to stabilize our currency,” adding, “We cannot reverse the weakness of our currency, but we can ease the decline.”
Since the 1997 Asian financial crisis, central banks in Asia have been working hard to hold dollars to prepare for a sharp drop in the value of the currency. However, as the U.S. Federal Reserve raised its key interest rate rapidly this year, the value of the dollar soared and the value of Asian currencies fell helplessly in forex. In fact, the Philippine peso is at its lowest level since 2005 and the Indian rupee hit its lowest level last week. Bloomberg said, “The worst situation in Asia has not come,” and analyzed, “Inflation will continue to worsen.”
