Asia central banks rebuild US$6 trillion defense as Fed hike looms

HONG KONG/MUMBAI (June 13): Asia’s central banks are stacking the sandbags. 

Foreign-exchange reserves are being rebuilt as monetary authorities brace for the Federal Reserve’s third rate hike in six months. While the expected move has been well telegraphed, prolonged periods of Fed tightening can cause jitters for emerging markets. Asia was slammed in 2013 when then-Fed Chairman Ben Bernanke’s hint of an end to quantitative easing sparked the "taper tantrum."

The turnaround is being led by China’s resumed purchases of US Treasuries, after it cut holdings last year by the most since 2000. The world’s biggest reserves pile grew by US$24.03 billion ($33.3 billion) to US$3.054 trillion in May -- the biggest increase since April 2014 -- as a stronger yuan and an easing of capital outflows help authorities in Beijing to shore up their buffer. 

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