The emerging economies of Asia are drawing on large foreign exchange reserves to help prop up their currencies rather than going all-out with the hikes in interest rates. Thailand, India, and Korea have seen their reserves decreased by a combined 115 million dollars to stop currency decline, and as most central banks in Asia are also raising the rates, and economists see this approach aimed more at tamping down the inflation than narrowing the rate different with the Federal Reserve.
The main hope in the region is that a relatively slow hiking cycle will be more than enough to keep a lid on price gains without sending the economies into reverse. Vishnu Varathan, economics and strategy head at Mizuho Bank Ltd. in Singapore, said the emerging markets and Asian central banks are less willing to indulge in the competitive hikes.
He also said the build-up of FX reserves mainly provides some scope for these central banks to exploit as a means to contain imported inflation.
China remains on a different course to the rest of the region, and its reserves have been decreased by 179 billion dollars in 2022 to 3.07 trillion dollars, but the central bank has decreased some main lending rates amid efforts to offset the impact of the COVID-19 zero stance of China.
Chua Hak Bin, an economist at Maybank Investment Banking Group, said several Asian central banks have accumulated foreign reserves during capital inflows periods, and low interest rates in the United States, which can be drawn upon.
