Asia’s different approaches to protect local currencies

Emerging Asia’s central banks have resorted to various ways to protect their currencies as fears of long-term interest rate hikes in the US and rising global tensions drive down the value of risk assets.

Asian currencies are particularly susceptible to outflows as base rates in the region tend to be lower than in other emerging economies, widening the differential with the US.

Among some of the ways officials are countering that:

▪️ Indian policymakers said this month that they intend to sell more bonds to soak up cash, which should support the rupee.

▪️ Their Indonesian counterparts started issuing a new line of debt in September to attract inflows and support the currency.

▪️ China is selling a record amount of local currency sovereign debt through offshore zones to boost demand for the yuan.

The use of creative ways to support their currencies is one way out of the dilemma of having to choose between allowing a currency to weaken, burning through reserves, or raising rates and crimping economic growth.