CENTRAL banks in emerging Asia are increasingly finding ways to support their currencies without dipping into foreign-exchange reserves, as recurring Middle East tensions and the prospect of higher-for-longer US interest rates keep policymakers on edge.
India has lured nearly $40 billion from its diaspora via high-yield dollar deposits, underpinning a recovery in the rupee from a record low in May. South Korea’s push to accelerate corporate dollar repatriation has helped the won to its biggest monthly gain since 2022. Indonesia drew $1.6 billion in bond inflows in the last two months as it offered incentives to foreign funds, and Taiwan has also been instructing exporters to sell US dollars at times of currency weakness.
The measures broaden the toolkit for policymakers, supplementing traditional tools such as interest-rate hikes and foreign-exchange intervention that formed the first line of defense after the Mideast conflict sent oil prices soaring. The spike exposed emerging Asia’s heavy reliance on energy imports, making the region one of the weakest pockets of the currency market. While oil prices have since eased on signs the US and Iran are nearing a deal, several Asian currencies still rank among this year’s worst performers.
Still, EM Asia central banks aren’t abandoning traditional defenses.
Authorities in the Philippines have raised rates by 50 basis points, and the Bank of Korea last month tightened policy for the first time in three years. MUFG Bank Ltd. is forecasting two more increases by Indonesia and the Philippines, and at least one more hike by the BOK this year.