Southeast Asia has done a “decent job” of allowing markets to absorb some shocks from an aggressive US monetary tightening while ensuring that currency weakness doesn’t spiral out of control, according to Singapore’s central bank chief.
“It goes back to striking the right balance between letting the exchange rate depreciate to absorb the shock; not to fight it, not to fight the market movements too much,” Monetary Authority of Singapore Managing Director Ravi Menon said in an interview with Bloomberg Television’s Haslinda Amin.
At the same time, central banks must “lean against the wind” and deploy some of their foreign currency reserves as they’ve done so the situation doesn’t get out of hand. “A whole lot of things can happen when the exchange rate moves too fast, too far” including a disanchoring of confidence, he said.
Four of the biggest economies in Southeast Asia -- Indonesia, Thailand, the Philippines and Malaysia -- are grappling with more than 8% depreciation in their currencies this year, prompting active intervention and key rate increases in part to curtail imported inflation. Countries have been managing the situation well and fundamentals are stronger now compared to five years ago, according to Menon, as he urged peers to remain vigilant.
“If the dollar appreciates much more rapidly than this, then yes, we do have to be concerned,” said Menon.
In the Philippines, officials have signaled they’ll act to prevent the currency from “breaching 60” pesos to the dollar, practically drawing a line in the sand. Elsewhere, including in Japan and in India, officials have been deploying billions of dollars to shield their currencies against the dollar strength with the backdrop of the Federal Reserve’s steep rate hikes.
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Singapore this month tightened monetary policy for a fifth time since October 2021 to fight inflation, which it sees staying elevated through 2023. The latest print showed core prices, which is the MAS’s preferred gauge, accelerated again in September to the fastest pace in almost 14 years, as the costs of staples and recreation surge.
Still, inflation rates across Asia are mild compared with the US, where price growth has triggered “faster and harsher” tightening than in other parts of the world, said the MAS chief. Slowing growth and recession risks especially for the US, UK and Europe loom next year as the world contends with the fallout from rate hikes, he said. Yet there is a silver lining.
“Given where inflation is, a slowdown in the global economy is not altogether a bad thing,” Menon said. “It’s a good way to relieve those inflationary pressures. Provided the slowdown is mild, short, and shallow.”
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Other Highlights
The dollar remains the dominant global currency “by far” where nothing comes close so to refer to this trend where there’s greater use of local currencies on regional trade as de-dollarization “is far too strong a word”
“I don’t think we can take away the fact that 60-80% of central bank reserves are held in US dollars. The US dollar is on the other side of 90% of every foreign exchange trade in the world. It just goes to show how strong the position of the dollar is”
Menon is preparing to play host to some 60,000 people at Singapore’s FinTech Festival Nov. 2-4, which will be the event’s first in-person gathering since 2019. The festival will feature panels with public and private banking and business leaders, including Grab co-founder Anthony Tan, Central Bank of Kenya Governor Patrick Njoroge, Binance CEO Changpeng Zhao and Melinda French Gates
