Asian central banks on spending spree: currencies weak vs USD

• Thai, Indonesian, Korean reserves lowest in more than a year
• All Asian currencies weakened against the US dollar in 2022

After years of building their foreign-exchange reserves, central banks in Asia are tapping into their stockpiles to bolster their weakening currencies against a rising US dollar. 

Thai reserves slid to $221.4 billion as of June 17, in data released late last week. That was the lowest in more than two years. Monthly figures show that Indonesia’s stash is at the smallest since November 2020. Reserves in South Korea and India are at their lowest in more than a year. Malaysia’s stockpile, meanwhile, has fallen the most since 2015. 

Learning from the 1997 Asian financial crisis, central banks have been accumulating dollars to help defend their currencies during periods of wild market swings. 

This year, as the hawkish Federal Reserve boosts the US dollar, central banks have reversed the buying: Thailand and Indonesia are among those which have pledged to reduce volatility in their currencies. The Bangko Sentral ng Pilipinas said it is letting the market determine the peso’s value against the dollar, and is only intervening to curb volatility.

Asian currencies may come under more pressure as the Fed prepares for another big rate hike next month, with analysts expecting a minimum 50 basis-point increase. Already, regional currencies are hovering at multi-year lows: the Philippine peso on Monday slumped to its weakest since 2005, while the India rupee declined to a record low last week.

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